It is possible to remortgage with credit card debt, so long as you are generally able to prove that you can afford your monthly repayments. Assuming you are able to do this, you may still face some restrictions on the amount lenders are willing to offer you. You could also find that any mortgages offered will be subject to a slightly higher interest rate than you might otherwise have been given.
In this article, we discuss how credit card debt and other debts can affect the remortgaging process and what to do if you are struggling to find a lender who will accept your remortgage application.
How does credit card debt affect a remortgage?
This all depends on the level of your credit card or other debts. Of course, the larger the debt, the larger the warning signs are likely to be to any lender. Lenders will want to understand the nature of any debts you may have. They may ask questions such as:
- How long have your debts been outstanding?
- Are you struggling to repay them?
- Has the overall level of debt been increasing?
- Are your debts properly structured?
- Have you met all the repayments on time?
- If your debt has occurred recently, what was the reason for this?
The answers to these questions could potentially present some ‘red flags’ to a lender. This might cause them to view your application as being a higher risk. This may cause them to decline your remortgage application outright. This could then adversely impact your credit score or it may restrict what they are willing to offer you.
If you are meeting your regular payments on time and managing to reduce the outstanding credit, then a lender may be willing to look upon your application more sympathetically. Remember, all lenders approach applications on a case-by-case basis. Some lenders will have very strict policies on personal debt. Other lenders are more willing to consider lending to applicants with higher levels of credit card borrowing. You might find that you may be a little more limited in choice, but the mortgage market is vast and there are deals out there for all kinds of borrowers, including bad credit mortgages.
It’s a good idea to enlist the help of a mortgage advisor and broker, such as us here at Mortgage Light. We know which lenders to turn to in order to have the best chance of getting approval on the first attempt. We have access to the whole mortgage market, including lenders that only we can access as mortgage professionals.
Find out more – ‘How does bad credit affect a mortgage?’
How much credit card debt is too much?
There is no cut and dry answer to the question of how much credit card debt is too much. It depends on your personal circumstances and your debt to income ratio. For instance, you might have £3,000 worth of recent credit card debt outstanding. However, maybe you are about to sell your car or due a bonus from work that will repay or substantially reduce this. A lender may then accept this and consider you a sound applicant for a remortgage.
On the other hand, if you have had this level of outstanding credit card debt for some time and there is no evidence of you being able to reduce it, then this could be a sign of poor financial management and therefore a warning sign.
Some lenders may automatically reject your application in these same circumstances, simply as a result of the level of your credit card debt. Each lender will have its own assessment criteria. It’s important to understand which lenders are likely to be more sympathetic to your situation.
It’s safe to assume that if you have maxed out your credit card/s and you have used up the majority of your available credit, lenders are less likely to look upon your application favourably. Even if you have never missed a credit card payment, high levels of credit card debt can be an indication that you are reliant on credit cards. Even if a lender is willing to accept a remortgage application from you, they will probably have a number of questions for you to try and fully understand the story behind your credit card and general borrowing history.
Find out more – ‘What happens if a mortgage application gets rejected?’
Will missed or late credit card payments affect a remortgage?
If you have missed any credit card payments, this is likely to be a red flag to any mortgage lender. They may think carefully before accepting or processing an application from you. If you have a missed payment that has been outstanding for more than one month (therefore meaning you owe more than any current month’s repayment), you will be in arrears. This is considered a more major red flag.
Late payments are generally considered less severe and as long as the payment is caught up within the same month that it is due, most lenders won’t report it as a missed payment to the credit agencies. If not though, reported late and missed payments will inevitably lower your credit score. And a low credit score can make getting a mortgage a little more of a challenge.
There are, however, a number of specialist lenders who are willing to lend to applicants with lower credit scores. The remortgage market needn’t be closed to you if you have been impacted in this way.
Find out more – ‘Can I remortgage with bad credit?’
Can I remortgage to pay off credit card debt?
You may be considering a remortgage as a way to pay off some or all of your credit card or other debts. You could potentially do this by remortgaging. Remortgaging could allow you to release some cash from the equity that has built up in your home since you purchased it. You to pay off your outstanding personal credit.
This would effectively consolidate your personal borrowing with your mortgage into a single loan secured against your house. By doing this, you are transferring unsecured short term debt into secured long term borrowing. This will generally reduce the interest burden on the short term debt and also your monthly repayment costs. These will now be spread over a much longer term.
The overall cost of this might ultimately be higher in the long run. You will be repaying your borrowing over a much longer period. However, it should provide some relief to your monthly budget. A good financial advisor, such as us here at Mortgage Light, will be able to guide you on the value of your options if this is something you are considering.
Let’s say for example that you currently own a property worth £300,000. You have a £200,000 mortgage outstanding. You want to release £15,000 of equity from your home in order to pay off your credit card debts (or any other debts). You’d therefore need to take out a new mortgage for £215,000. This will refinance your existing mortgage and provide the additional cash to pay off your credit cards.
This is called debt consolidation. It’s important to note that this simply moves your debt onto your mortgage, rather than actually paying it off. Consolidating your loans doesn’t reduce the amount you owe. It instead restructures it in what might be an efficient way of borrowing.
Find out more – ‘Can you remortgage to pay off debt?’
What should I do if I can’t get a remortgage accepted because of credit card debt?
Struggling to know where to turn when remortgaging with credit card debt? Speak to an experienced mortgage advisor and broker. They should be able to provide guidance and help you to secure the deal you need. At Mortgage Light, we have helped many people just like you achieve what they need from their remortgage – even with credit card debt or adverse credit history.
Our experts know the mortgage market like the back of their hands, including which lenders are more accepting of credit card debt and other financial issues such as low credit scores. We will always do our best to find a suitable lender that will accept your remortgage application.
Let’s start your remortgaging process together. Get in touch with us via our website or call 01908 597655 today.