What is a credit repair mortgage?
A credit repair mortgage or a bad credit mortgage is for people who have a bad credit history and are therefore not eligible for a standard mortgage. A credit repair mortgage allows people with arrears or CCJs to borrow and prove they can make the repayments; making regular mortgage repayments starts to 'repair' their credit history, making them more attractive to lenders again. Due to the risk involved in lending to people who have had financial problems in the past, lenders protect themselves by making the terms and conditions far stricter, and the interest rates much higher than on other types of mortgage. Payments have to be timely and reliable for a number of months or years for the mortgage to be considered a success.
Who uses credit repair mortgages?
Credit repair mortgages are often used by those who have gone into arrears on their previous mortgage, but are available to any who have a spotty credit history. They can demonstrate financial reliability and repair credit histories that have been affected by previous events.
What the benefits of credit repair mortgages?
Credit repair mortgages are in some cases the only option for those who are affected by bad credit histories or have had their mortgage run into arrears. They can be used to save mortgages that might otherwise have to be abandoned and also provide for some the only option for a first step into the mortgage market. Their stringent terms means they can help develop disciplined repayment habits for those who have had troubles with more lenient programs in the past. In some cases repossession of a property can be prevented with careful negotiation onto a credit repair mortgage.
What are the disadvantages of credit repair mortgages?
A credit repair mortgage will have far more stringent terms and higher interest rates than a standard mortgage. Payment flexibility is unlikely to be available in any form, with the aim of proving that the borrower can adhere to a regular and rigid system of repayments. Due to the nature of a credit repair mortgage failure to keep up with repayments can also lead to serious consequences. Finding the right adviser also becomes more crucial when dealing with credit repair mortgages.
How much do they cost?
Failure to keep to the restrictive terms and conditions of credit repair mortgages can carry high penalties and/or excessive fees, which is one way in which credit repair mortgages can be more expensive than other mortgages. Another cost is the higher rate of interest charged by a credit repair mortgage. But it is possible to find better deals through research and by shopping around. Independent financial advisers (IFAs) can also advise on appropriate products and different lenders will supply different rates of interest.
How do you choose the best credit repair mortgage?
Credit repair mortgages are supplied by a number of organisations. As well as specialist companies that deal exclusively with credit repair mortgages there are a number of mainstream non-standard lenders such as banks and building societies that can also offer appropriate products.
The more serious the problems with your credit history the more likely it is you may need to go to a specialist lender. As well as the considerations that apply to standard mortgages, such as interest rates and fees, there are a number of factors that can be used when deciding between different credit repair mortgages:
Interest rates – While a low interest rate is far from the only indicator of a good product having a low rate of interest while on a tight budget can be crucial. Obtaining information on choosing the best type of mortgage interest rate (e.g. tracker, fixed) is also important.
Terms and conditions – These can be restrictive and stringent in a credit repair mortgage but that is no excuse for not shopping around for the best deal. Products with low charges, fees and penalties can be valuable when on a tight budget and there may be a number of mortgages that eliminate certain charges altogether.
Minimum term of the mortgage – Repairing your credit history can take a certain amount of time. This will vary depending on what troubles you have had in the past. Make sure that the minimum term of the credit repair mortgage doesn’t dramatically exceed that time or else you could end up paying higher rates than necessary rather than being able to switch to a more competitive mortgage.
The lender – Doing background research on the lender can be very important. Unauthorised lenders and loan sharks are uncommon but they do exist, and it can be very easy to fall prey to a convincing salesman. Be sure that your lender is properly qualified, has a good history and is on the FSA’s list of regulated lenders.
Ability to remortgage – After a certain period of regular repayments your credit history should be restored and it may be possible to move back to a standard mortgage. Make sure that your mortgage allows this and does not have any hidden fees or restrictions that may prevent you remortgaging when you want to.
How do you find a credit repair mortgage?
A number of banks, building societies and mortgage companies will offer credit repair mortgages directly.
It is also possible to work through an intermediary such as an agent or broker. Some of the more specialist companies may only work through intermediaries, rather than take direct business.
Bear in mind finding a good agent or broker can be a difficult process and many of them will work on a commission basis, allowing them to profit from making a sale rather than improving your circumstances. Be sure to ask the background and affiliations of any intermediary you use, and ask what products they earn commission from.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.