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Bad Credit Mortgage Loans

Apr 1, 2008
Bad credit mortgage loans are not difficult to get if you know how to find the right companies. Although the subprime mortgage collapse in the USA has made many lenders nervous of debtors with bad credit records, it is still possible to secure an adverse credit mortgage.

The reason for this is that the lender has your house as security and will take it from you if you fail to pay. If this sounds blunt, it is meant to, since you have to understand the truth and what would happen if you failed to pay. If a company is willing to provide you with a mortgage loan in spite of your bad credit record, they will not hesitate to recoup their money if you fail to pay.

This is particularly true now, after the subprime collapse - a subprime mortgage is simply another term for a bad credit mortgage loan. It is important, therefore, that you are sure that you can easily meet the payments if you accept such a mortgage loan. There are things that you can do to make it easier for you to pay, and here are a few of the major steps that you can take to reduce your monthly payments to a minimum.

Mortgage lenders will offer you bad credit mortgage loans, but generally at a higher than standard interest rates. This provides them a bit extra security against you failing to pay: the extra interest from all the other lenders will make up for your default. Even though your house will be sold to pay for your loan in event of default, the lender cannot be sure of making the full amount from the sale.

Your first act, therefore, should be to compare the interest rates. Some companies will charge more for arranging the adverse credit mortgage than others, but then offset that with a lower interest rate. That is possibly better for you if you can afford the initial payment, since then your monthly payments will be less, and that is what you are trying to keep to a minimum. It is the payments that you have to make every single month for years that eventually get too much for some to be able to maintain, so the lower these are the better.

Depending on your age you will probably be offered options on the repayment period. The shorter this period, then the sooner your debt will be paid, and the less interest you will pay on it. However, your repayments will also be higher, and you should never agree to repay more than you can comfortably afford. What if the interest rate increases, or if your income drops: this can happen for a number of reasons, long term illness for example.

If you take bad credit mortgage loans over a longer period you will certainly pay more in interest, especially at an elevated rate, but you will also have a lower monthly payment to meet. You could take this type of mortgage with a company that will allow you to pay more when you can afford it, and so complete the mortgage without penalty. This would be the ideal arrangement: pay less at the beginning (after all your credit is bad so you have been in financial difficulties) and then more as your financial situation improves.

The lenders themselves should see the benefits of such an arrangement, yet many still insist on early settlement penalties. That means if you take the loan over 20 years, and repay it in 15, then you have to pay the extra 5 years interest, or least a proportion of it. Look for an adverse credit mortgage lender that will allow you to pay early without this kind of penalty.

Another way to reduce your payment is to pay a higher deposit if possible. I know this might be difficult if you have had money problems, but although you might be able to get a 100% mortgage, you will pay extra interest on this and your repayments will be considerable higher than if you could arrange a 95% or even 90% mortgage by making a 5% or 10% deposit.

In fact, if you can pay 25% on your home, no matter how unlikely this is, you will probably be offered a standard rate mortgage no matter how bad your credit record is, and you will pay even less each month. This is good information, but most people requiring bad credit mortgage loans will be unable to raise this amount of money, and the realistic way to reduce your initial monthly repayments is to take the mortgage over as long a period as possible, and with as low an interest rate as you can negotiate.

I say this because negotiation often works. If you can provide evidence that your bad debts were due to unusual and unforeseen circumstances, and that you have paid your creditors and are in a significantly stronger financial position, you should be able to negotiate a favorable rate of interest, and your mortgage loan need not be unduly penalized in this way.

Bad credit mortgage loans come in many forms, and which you settle for is completely your own choice. There is no need to take the first one offered, and if you take the above advice then you will certainly have done your best to reduce your monthly payments to an easily affordable level. These are the all important words: 'easily affordable', and if you succeeded in that then you will have succeeded in getting finance for your new home that you are confident of repaying year after year. A job well done!!
About the Author
If you want further information on bad credit mortgage loans, and how to get an adverse credit mortgage, check out Bad Credit Mortgage Loans for more information on how to get the type of loans that you need.
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