Having bad credit can be embarrassing and costly, but it doesn't mean that owning a home is out of reach. Creditors, including mortgage lenders, may assess additional financing costs due to their perception of higher risk associated with bad credit loans. Prospective home buyers and homeowners looking to refinance existing mortgage loans should understand some basics about mortgage loans and financing charges. This can help save money, or avoid unanticipated mortgage terms such as increasing interest rates and rising payments.
Bad Credit: Misunderstandings Can Damage Credit
Credit can be damaged for a variety of reasons, but not understanding the terms of a credit contract can often lead to disaster. For example, signing for an adjustable rate mortgage (ARM) that has no limits on how payments can adjust can lead to trouble if borrowers don't understand that their payments can increase. When considering bad credit mortgage loans, potential borrowers need to know:แสดง
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The interest rate
If the rate is fixed for the life of the loan or if it changes
When the rate can change (when the initial low-rate "teaser" period expires)
What the maximum rate can be at the first adjustment and each subsequent adjustment (rate cap)
What the maximum payment can be at the first adjustment and each subsequent adjustment (payment cap)
What the maximum rate and payment can be over the life of the loan (lifetime cap)
If there is a prepayment penalty and how it is applied
If the answers to these questions are not apparent, don't be afraid to ask! Mortgage documents represent a binding contract to repay the mortgage according to its terms. Making payments on a bad credit mortgage can help rebuild credit, but be sure that you don't commit to a mortgage loan and payment that you may be unable to honor. It's important to plan carefully to ensure that any mortgage chosen is affordable and appropriate to individual financial situations.
Your mortgage lender should work with you to find a loan that is most appropriate -- don't be afraid to speak to several until you find one you are comfortable dealing with.
The Bad Credit Mortgage Loans: Learning from Past Mistakes
By Karen LawsonMortgage Credit Problems Columnist
About the AuthorKaren Lawson is a freelance writer with extensive experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.
Friday, May 9, 2008
The Bad Credit Mortgage Loans: Learning from Past Mistakes
Bad Credit Mortgages: Make Teaser Rates Work for You.
When you have bad credit, expect to pay higher mortgage interest rates when buying or refinancing your home. The introductory or "teaser" rates offered by many subprime lenders can help you afford your home and restore your credit rating.
Teaser Rates Can Hurt Borrowers with Bad Credit
Many mortgage loans for borrowers with bad credit have 2 stages. The first phase is an introductory period of 2 or 3 years. During this time the rate is fixed and is significantly lower than 30 year fixed rates. This rate has been nicknamed a "teaser" because lenders use it to make the loan more attractive to prospective borrowers. In the second phase, the loan converts to an adjustable rate mortgage (ARM) and the rates and payments can skyrocket. Unprepared or poorly counseled borrowers could be in danger of losing their homes when this happens.
Teasers Can Make Homes Affordable
Loans with teaser rates can help you improve your bad credit. In fact they are sometimes called "band-aid loans" because they are supposed to be temporary. The lower rate gives you a chance to buy a home that would otherwise be unaffordable. The mortgage also allows you to build a positive credit history by paying it on time. And finally, it provides a two-or-three year window to clean up your credit. You should be able to refinance to a lower rate before the introductory period ends and the rate goes up.
How to Shop for a Bad Credit Mortgage
Check with several lenders for rates and fees because bad credit mortgages are often underwritten and priced on a case-by-case basis. Make sure that you will be able to refinance without a prepayment penalty before the loan converts to an ARM. By using the first 2 or 3 years to change your behavior and fix your credit, you can have a happy ending. Your reward will come when you refinance to a better loan.
Bad Credit Mortgages: Make Teaser Rates Work for You.
By Gina PogolMortgage Credit Problems Columnist
About the AuthorGina Pogol writes for an online media company and specializes in finance and mortgage issues. She formerly worked as a systems consultant with Experian and a mortgage consultant with Centex. She has a BS in financial management from the University of Nevada. About the AuthorGina Pogol works as a writer and editor for an online media company. She has a BS in financial management, was formerly a business credit systems consultant with Experian and a mortgage loan consultant.
