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Poor Credit Mortgage

Some people who are looking to buy homes do not have very good credit ratings, and these people may have a hard time finding a mortgage. They may have to go to mortgage lenders who advertise poor credit mortgages. These mortgages typically have higher interest rates than those available to people with better credit scores and credit history.

Some of the poor credit mortgage options include adjustable rate mortgages, or ARMs. These poor credit mortgages typically start at a low interest rate and then increase in conjunction with an index rate. This can mean that the payments on these poor credit mortgages will suddenly become much larger once the adjustment period (usually between one month and five years) passes. At times the payments on these poor credit mortgages can even double after an adjustment. These adjustable rate poor credit mortgages might seem attractive since the initial payments and interest rates are so much lower than those associated with other poor credit mortgages, but people need to be very careful about these types of loans. Many people are getting foreclosed on now because they cannot make the payments on their adjustable rate mortgages.

If you cannot get a fixed rate poor credit mortgage at a rate that you can afford to make the payments on, it might be best to wait a while and improve your credit before buying a house. Although the adjustable rate poor credit mortgage may seem very attractive, it could end up leaving you with a foreclosure on your credit history and worse off financially than when you started.

Adjustable rate mortgages are best for people who plan to stay in the house for only a short time, preferably selling before the initial adjustment period is over. However, even then these poor credit mortgages can be a risk, since the housing market might go into a downturn and make it difficult to refinance or sell your home before the adjustment period is over.

One other thing to watch out for with poor credit mortgages is prepayment penalties. Some mortgage lenders try to take advantage of those who don't have a lot of options for mortgages by adding hidden fees or prepayment penalties to the mortgage contract. Although you might not think you are going to be able to pay off your poor credit mortgage early, your circumstances might change, and then this could save you a lot of money in interest. Or, you could decide to refinance your poor credit mortgage to get a better interest rate once your credit improves. This is considered prepaying your mortgage, so any prepayment fees associated with your poor credit mortgage would be due at this time.

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