Guide to Refinancing under mortgage stress
If you want to find out how to refinance your home loan while under mortgage stress, then you are dealing with debts and repayments that are difficult to afford.
If you’ve been under mortgage stress for a while, you may well have been late with one or more payments, or you might have some negative entries on your credit report from other debts.
Bad marks, defaults, late payments can mean you have a bad credit score. Getting a home loan or refinancing a home loan with bad credit can be more difficult but it is not impossible.
When you’re stranded on high rates, one solution is to refinance, but your patchy record might make it difficult just when you need this help most.
Economist Martin North from Digital Finance Analytics says thousands of Australian families are “stranded” on high interest rates because they are struggling to refinance to a lower rate.
There are some lenders that will consider refinancing applicants with defaults, but you must meet them halfway by demonstrating that you can improve your situation and control your debt.
You may also need evidence that you have enough equity in the property, or enough savings, to need to borrow less than 80 per cent of the loan–to–value ratio.
How to improve your chances of refinancing
Your refinancing with bad credit so you may need to shop around and compare deals.
Whether you’re refinancing for a better rate, to find a mortgage with better features or to consolidate your debt, there are some steps you can take to avoid refinance rejection.
If possible, ensure your loan–to–value ratio (LVR) is lower than 80 per cent. This means that you have at least 20 per cent equity in the property, which is the level at which you’re regarded as less risky. If you’re looking at non-conforming lenders due to defaults or arrears, or even bankruptcy, then having a low LVR will improve your chances of success.
If you know that your LVR is good, then you can set about improving your chances further. Having an LVR below 80 per cent also means you won’t have to pay lenders mortgage insurance, which can add quite a chunk to your overall costs.
How much is your property worth?
Get a free property report on your own home to start with. Get some market opinions from local real estate agents if you think these could assist you.
Obtain your credit report
Having your credit file in front of you lets you see how you’ll look to a lender. You’ll be able to see how many payments are late, or missed, as well as spot any mistakes or listings that need to be removed. You might see that there are some negative entries due to be removed, so if you can wait a few more months to refinance, do so.
Take control of your debts
If you are waiting for negative listings to “fall off” your report, then while you wait, attack the existing ones. If you’re having difficulty with credit cards, utilities and similar commitments, then talk to your providers to work out some plans. If you’re not in too much difficulty, but you have some smaller debts that could be paid off, make the extra effort and get them marked as settled on your file before you apply for refinance.
Make a budget and show it to the lender.
Comparing refinancing home loans for bad credit
You should take your time to look at the lenders and products on the market because you’re making an important decision. The last thing you want to do is choose the wrong product and end up trapped in a mortgage that’s even more expensive than your existing one. Here’s what you need to look at.
The interest rate
Very often, home loans for poor credit or low–document applicants have higher interest rates than “regular” mortgages, so make sure you can afford the rate.
The comparison rate
The comparison rate is the true cost of the mortgage as it factors in any establishment, application and ongoing fees that might be included. This is especially important if you’re already paying a relatively high interest rate.
Check out the fee structure to make sure there are no hidden surprises and extras. If you’re recovering from debt or you’re on a tight budget, those few dollars extra each month can really count.
Understand your repayment schedule
When you’re looking through the products and lenders on offer you need to focus on options with a repayment schedule that suits you best. Some lenders let you choose the day of the month that’s best for you to make your repayment while others aren’t so flexible. If you know that you’re more able to stick to the schedule if you can pay just after payday, for example, then choose a lender that allows you to set your schedule.
Alternatively, if your lender allows fortnightly repayment and there’s two of you paying the home loan off, then this is actually a great way to pay your mortgage off sooner. You might think you’re making 24 payments because there’s two payments each month, but you’re actually making 26 payments and between two of you, this shouldn’t hurt too much.
Compare home loans from 99 Australian lenders at InfoChoice.
Home Loans: The comparison rates are based on a loan amount of $150,000 and a term of 25 years.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.
The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements
InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.
The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.