Since house prices started to slide, lenders have become increasingly cognisant of high risk secured borrowing. According to the Mortgage Bankers Association, 1 in every 200 U.S. family homes will be repossessed during the current downturn. It is a fair assumption that the best remortgage rates will be offered to homeowners who are least likely to default. Foreclosing on a property is not only time consuming, it is financially expensive and tarnishes the image of the lender.
How to Get the Best Remortgage Rate
In order to minimise risk, banks use a more stringent set of criteria to determine eligibility. The cheapest mortgage loans will be made available to customers who are in stable employment, have a low income to debt ratio, have excellent credit and are able to offer a decent house deposit. This approach ensures that the borrower is well placed to make their monthly repayments. Also, the bank knows that they can easily recover the full loan value in the event of default.
A Low Interest Mortgage Requires Good Credit
Any homeowner who is looking for the best remortgage rate will need to avoid a low credit rating. Those who have missed payments will only be eligible for a bad credit mortgage. Whilst it can take several years to improve credit, some credit reports do contain inaccurate data. It is important to get hold of a report from Experian, Equifax and TransUnion to check for errors. Always get these corrected several months before performing any mortgage refinancing.
Stable Employment Leads to the Best Fixed Rate Mortgage
The borrower’s employment is fundamental to sustained affordability. Not surprisingly, the best remortgage rates won’t be offered to those who are in temporary employment or still in their probationary period. This is because their income can stop at any time. Customers in a trade or professional job will always be favored by lenders, but it is the length of time that person has held their job that is most critical.
A Low Income to Debt Ratio
Just as the sudden loss of employment regularly leads to default, an unsustainably high level of debt relative to income can be equally catastrophic. Lenders are unlikely to lend money to those who have an income to debt ratio that is greater than 36%. In practice, the lower this figure the better.
Mortgage Refinancing Requires a Sufficient House Deposit
Whilst this criteria is often relaxed when property prices are rising, the greater the home equity the more likely a homeowner is to receive approval for the best fixed rate mortgage deal. Should the customer be unable to maintain their monthly repayments, the lender wants to be able to recover its money. Whilst they are obliged to get fair market value, equity provides a cushion against any repossession deficiency.
Achieving the Best Remortgage Rate
The cheapest mortgage loans will only be offered to homeowners who present minimal risk of default to the lender. This means that credit history, employment and home equity are fundamentally important. Always compare mortgage rates online and check for feedback regarding how existing customers are treated.