Should You Rush In To A Bad Debt Remortgage?
A bad debt remortgage may seem like the only answer when you are facing financial difficulties, but it’s worth taking some time to think before you sign a bad debt remortgage deal. One reason why it might be worth waiting is that you may be able to get a better deal that way. This is not directly about improving the interest rate on your bad debt remortgage, though that may be the result of waiting a while.
A bad debt remortgage is a good way to get a mortgage if you have bad debts, but bad debts only stay on your record for a limited time. This depends on whether they are arrears and defaults, County Court Judgements (CCJs), bankruptcies or individual voluntary arrangements (IVAs). Whichever of these circumstance affect you, they will be gone from your credit record within six years. So if you are close to the six year mark, then waiting a few months may mean that you do not need a bad debt remortgage at all – or can get a better deal if you do.
That won’t work for everyone. You may need a bad debt remortgage simply because you are paying over the odds on your existing mortgage. With interest rates rising, you might prefer to be on a fixed rate deal rather than a standard variable rate (with additional loading for the credit risk). And you may also have other debts that you need to repay. While a bad debt remortgage may be able to help with all of these situations, it is still a good idea to weigh risks and rewards before jumping in with both feet.
The big risk is that you will lose your home if you are unable to keep up mortgage repayments. Like any other mortgage a bad debt remortgage is secured on your home, so if making repayments is likely to be tricky then it’s worth thinking about the options. However, to balance the big risk, there are big potential rewards with a bad debt remortgage. First of all, if your house has increased in value, equity release will allow you to have cash in hand to repay your other debts. This means that your bad debt remortgage can also be used as a debt consolidation loan.
The second big reward of a bad debt remortgage is that once you have paid it properly for two or three years, you should be able to move to a product with a better interest rate, and will have begun to repair your credit status into the bargain.
If you do decide that a bad debt remortgage is right for you, there are still issues to be weighed up. These include the interest rate you will have to pay and any penalties that exist for early redemption. These penalties can be quite steep, so be sure to read the fine print. After all, with so much more flexibility in the mortgage market, there’s a good chance you can find a bad debt remortgage that suits your pocket.