Bad Debt Mortgage Loans & How To Make Them Work In Your Favor

If you are looking into bad debt mortgages then you should know that there are some options for getting a mortgage for those who have had past credit problems or bad mortgage debt. There are even some options for refinancing, but you are going to end up paying through the nose for these type of mortgage loans, because the companies that cater to those with a poor credit history attempt to make up for the riskiness of the loan by charging a very high interest rate and you may find that you’ll save more money by simply fixing your credit and getting a conventional mortgage loan.

If you are looking for a bad debt re mortgage or a refinance, this is a common practice for those who have fallen into the pit of bad credit, and are struggling to make their mortgage payment, or simply want to refinance to get a better interest rate or get some cash back to make purchases or pay other types of bills. Rather than bankruptcy attorney fees and the like, they are looking to try to refinance their home so that their monthly payment goes down and they can cash out the equity to get a lump sum of cash to pay their other debts off or to supplement a lost income.

A bad debt mortgage loan is called a subprime mortgage because the interest rate is much higher than the prime rates that people who have good credit can get for their home loan. Bad debt mortgages cost much more than conventional mortgages but you will not see a huge difference in your monthly payment. However, even a one percent increase in your interest rate can cost you a great deal of money in the long run and if that bothers you then you may want to wait until you have better credit or can explore one of the options that may make you qualified for a conventional mortgage even if you have a poor credit history.

Take a $200,000 home for instance. Let’s suppose that the normal interest rate is 5%. This means that if you put no money down, the loan will cost you $10,000 a year, or $300,000 on a 30 year loan term. If that interest rate is raised to 6%, then it will cost you $12,000 a year, or $360,000 on a 30 year loan. That means that your bad credit will cost you an extra $60,000 in this scenario over the term of your loan. Of course, you can reduce this amount by putting more money down and by shortening the loan term so if you plan on a ten year term with 20% down, you would only pay an extra $16,000 on a bad credit mortgage loan.

There are certainly ways that you can improve your chances of qualifying for a conventional mortgage rather than doing a bad credit loan. Having money saved for a down payment is a big one. The larger your down payment, the more likely you are to get financed for a home. Also, the amount of time that you have on the job and your income are also factors that will influence whether or not you get approved for that home loan, and the amount of debt you have against what you make every month, or your debt-to-income ratio, will be yet another deciding factor.