Credit scores & mortgage rates: Refinancing your mortgage

If you’re considering a move, looking for a better mortgage deal, or your current deal is coming to an end, questions about credit scores, mortgage rates, and how they’re connected might be on your mind. Loqbox has you covered with everything you need to know about refinancing mortgages and credit scores to help you find your best option.

Remortgaging can save you thousands when the situation is right. But it’s really important to understand how refinancing your home loan works, why you might want to take the leap, and how your credit is connected to the decisions you make. Before you jump into any new deals, we’re here to break down what you need to know.

What does remortgaging mean?

Remortgaging is essentially paying off your old mortgage with a new one, using your property as security. There are lots of reasons why you might remortgage, such as moving house, ending a fixed-term agreement, or looking for a better deal. 

You can usually remortgage at any point during your mortgage term, but remember that early repayment charges may apply.

When you first organised your mortgage it would have come with terms such as how much you agreed to borrow, how many years it would take to repay it, and how much interest you would pay on that loan. When you remortgage, you can change the terms of your agreement and possibly get a better deal.

Refinancing your mortgage doesn’t always mean you have to find a new mortgage provider. Depending on how happy you are with their offers, whether you have to cover an early repayment fee, and what the current interest rates are, the best deal could be with your current provider. It’s worthwhile considering all of the elements of your mortgage.

Why might I choose to remortgage?

Remortgaging for a better LTV

Mortgages are offered in terms of their ‘loan to value’ (LTV). This is calculated by dividing what you are borrowing or want to borrow by the value of your house, and expressed as a percentage. If you’re remortgaging with a lower LTV you may well find that there are more, and better, deals available to you.  This is because you are borrowing less as a proportion of the value of your home — which is the security that the lender has.

Remortgaging for better interest rates

Another common reason to remortgage is to get better rates. If your one, two or five-year fixed-rate mortgage comes to an end, and you do nothing, you’ll often be moved onto your provider’s “standard variable rates”. Standard variable rates are very often higher than initial mortgage deals, and they can go up and down over time. So you may want to explore a better deal either with your current provider or a new one.

Remortgaging to fund home improvements or consolidate debt 

You may also be thinking about increasing your mortgage.  Perhaps you want to do some repairs to your house or consolidate your debts. This can be appealing as mortgage interest rates are lower than many credit cards and loans, but the length of the borrowing term can often make the total amount for repayment more expensive. You might find that other options, such as a home improvement loan, are cheaper in the long run. 

Credit scores and mortgage rates: what's the connection?

You might already know how important credit scores are when applying for your first mortgage, but they’re just as important when refinancing your home. As always, when you’re credit checked, the higher your score the more likely you are to be accepted, and the better deals you’re likely to get. But there are other options if your score isn’t great.

Your credit score lets you know how trustworthy potential lenders consider you to be when it comes to borrowing money. When it comes to a mortgage, getting the best possible interest rates can save you literally thousands in the long run so it’s well worth the effort to get it right.

Let’s take a look at two main remortgaging options that can have a big impact on credit scores and mortgage rates: staying with your current provider on the same deal, and changing the terms of your deal or switching mortgage lender.

Staying with the same provider on the same deal

If you just want to stick with your current provider with limited changes to how much money you borrow, your lender may decide they don’t need to do another credit check. This means no credit check and possibly no affordability check.

Switching to a new provider or changing mortgage

If you stay with your current provider, but you choose to change your mortgage and pay more per month, that could trigger a credit and affordability check. The new terms of your mortgage would represent a new risk, so the lender needs to make sure that you’re in a position to make your repayments. 

If you switch to a new mortgage provider altogether, your application will work in the same way as when you first applied for a mortgage. That’s because the new lender will not know how creditworthy you are until they look at your credit history.

What is a good credit score for refinancing a mortgage?

So, you might be wondering what credit score is needed to refinance your house, and asking “do you need good credit to refinance?” The truth is that there’s no golden number that will ever guarantee that your application to remortgage will be accepted. But generally the higher your credit score, the better chance you’ll have of getting a favourable deal.

Remember, you can check your credit score before you apply to refinance your home by using these recommended credit monitoring services:

• ClearScore (uses Equifax data)*
• Credit Club (uses Experian data)
• Intuit Credit Karma (uses TransUnion data)

*Transparency is important to us, we choose our partners very carefully, and only present financial products we think will work for you. If you sign up to ClearScore using the above link, then they will pay us a commission for this.

What’s the minimum credit score to refinance your mortgage?

There’s no magic credit score that guarantees getting accepted, or declined, when remortgaging your house. Individual mortgage providers may have minimum requirements, and they will be different for each case, but getting your credit score in good shape could put you in the best possible position.

Does refinancing hurt your credit?

So, does refinancing affect credit? It can, yes, but it’s often a small impact and shouldn’t hurt your credit score too much. If you apply to a new mortgage provider, or if you change the terms of your mortgage with your current provider, they may do a hard credit check on you. This can temporarily lower your credit score. 

But don’t worry, if you keep making your repayments in full and on time then your credit score should soon go back up. Being patient, and waiting a while before reapplying, could help you benefit from a better deal in the long run. 

What if my application gets declined?

If you’re declined when applying for a remortgage, avoid reapplying too soon. Bear in mind that applying for lots of credit in a short period could hurt your credit score further. 

If you find yourself in this situation, it could be a good idea to speak to your current mortgage provider about what options might be available, or seek professional advice from a mortgage advisor. 

Can you have a bad credit score and refinance your home?

Yes, if you’ve checked your credit score and it’s listed as “bad” or “poor”, it may still be possible to remortgage your house. But you should be prepared for a tougher process and less competitive interest rates. Let’s take a look at your options:

Explore mortgage offers for people with low credit scores

Even if your credit score could use some improvement, you may be able to access some mortgage offers. However, you might not be able to borrow as much money, you might need a bigger deposit, and the interest rates will likely be higher.

Build your credit score before remortgaging

Lenders want to see responsible repayments, paid in full and on time. You can use your current mortgage to grow your credit score just by making sure you meet all your agreed terms. Proving that you can manage credit well is a fantastic way to build your credit score. Remember, the earlier you start the better.

How to get the credit score needed to refinance your home

If you decide to change mortgage providers when you remortgage, or you want to change to an improved mortgage deal, there’s a high chance that you will be credit checked. While nothing’s guaranteed, you can give yourself the best possible chance, and potentially save thousands, by having a higher credit score.

Joining Loqbox is a fast and proven way of building your credit score to give yourself more options when remortgaging. For £2.50 per week, full members get access to all our credit building tools. You could boost your credit score by up to 300 points in just three months.  

Improvements to your credit score are not guaranteed.