Bad Credit

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Bad Credit Mortgage Loans 101

Contrary to popular belief, bad credit mortgage loans still exist. However, they can be more difficult to obtain. Mortgages for those without good credit scores can be more expensive and entail varied terms. If you have bad credit, then it becomes even more important to shop effectively for your mortgage. Mortgages all have stated periods of repayment. Throughout time they usually were 30 years. More recently this repayment time frame began to be drawn out. Some extended to 40, even 50, years. Others had shorter periods allowing for quicker pay back. Most experts suggest a 30 year term. This often translates to a reasonable payment while allowing for appreciable principal reduction. Interest rates can vary. They are mostly all tied to main market interest rates. How much above this benchmark rate you pay depends on several factors. Your credit score is one of them. This is unfortunately one of the costs of having less than great credit. The good news is that refinancing is always possible in the future erasing the initial higher interest rate. Not only can they vary, but interest rates can also change. Some mortgages have what are called “fixed rates”. This means that the interest rate will remain the same during the life of the loan. Fixed rate mortgage loans allow for effective planning and budgeting. There are no surprises when the rate changes and your mortgage payment all of a sudden shoots up. Other mortgages have what are called “adjustable rates”. These loans have an interest rate which changes along with the market rate interest rate. With an adjustable rate one really never knows what the payment will be into the future. The advantage of an adjustable rate is the sometimes the initial payment is lower. However, this can quickly change resulting in a very high rate. This is especially so for mortgages with initial very low “teaser rates”. This loans can be especially dangerous and are heavily marketed to those with bad credit. Therefore, you need to be very wary of these mortgages. A very low initial payment is great. However, in a year, if it greatly increases you could be in a position that you can no longer afford your mortgage. This can obviously lead to a horrible result. Be wary of claims that you will be able to refinance at any point that the initial teaser rate shoots upward. Many borrowers were told this before and believed it. However, now they find they are unable to refinance because of declining property values. The result can be foreclosure. Obviously, you want to avoid this at all costs. Staying away from initial low teaser rate loans is a good step towards that end. There are bad credit mortgage loans available today. However, many can have nasty pitfalls. Make sure you are an educated consumer. Each bit of information available online can prove valuable and end up saving you money and heartache. Do your research, read the fine print, and avoid fancy or tricky mortgages and you’ll be a happy homeowner.

Author: Adam Hefner