Bad Credit Mortgages And How To Keep Paying Them

Bad credit mortgages are available, in spite of your bad credit record, for the simple fact that the lenders cover themselves for the possibility of some poor payers by charging a higher than standard interest rate. They also have your home as security against the mortgage loan.

You cannot really blame them for doing this because if you are honest with yourself, the fact that you have a bad record of payments indicates that you are a poor risk. This type of mortgage is also termed ‘sub prime’ and we all know about the recent collapse of the sub prime mortgage industry, don’t we? That occurred because too many mortgage lenders offered sub prime mortgages to high risk customers, and when they stopped paying the lenders ran out of cash to meet their own obligations.

However, in spite of that, there are still companies prepared to take the risk, and there are ways that you can reduce your payments to a manageable level and still be able to purchase a house. That, after all, is what a mortgage is for. Among these ways is mortgage repair, and while it is possible for you to go some way towards achieving that using proprietary software systems, the best way is to get a mortgage and keep up with the payments. Do that for two or three years without missing a payment and your credit score will start to go up.

The problem you have, though, is that your mortgage rate is going to be higher than the standard rate of interest, so you will have to pay more than those can afford it more. It’s a bit paradoxical isn’t it, but that’s the way the cookie crumbles. That means your repayments will also be higher. What you must do is to make sure that the repayments terms you agree to are easily affordable, because you will not find it easy to change them mid-term.

Nor will you be allowed to miss payments. Bad credit mortgages are monitored closely and you only have to miss one payment and they will be on the phone threatening action if you don’t bring it up to date. You have just missed one payment, so how on earth are you going to make two payments next month? The answer in a nutshell? – you can’t! So make sure you can easily afford the payments.

If we ignore the actual sum borrowed, because that depends on the price of the house you are buying, here are three things you can do to help:

1. Pay as high a deposit as you can afford. The greater your deposit the less the loan, and so the smaller the repayments. Scrape together as much as you can as a down-payment and reduce your mortgage loan. Most companies will ask for 5% – 10%, but some will give you a 100% bad credit mortgage. If you are offered that don’t be tempted to take it if you have enough spare cash for the deposit.

It’s easy to be misled by the thought of a car or a nice vacation instead of using the money as a deposit, but make the deposit even if you are offered a 100% loan. You will thank yourself for it later. The higher your deposit, the lower the interest rate some companies will offer and you will have less capital to pay back.

2. Choose a longer rather than a shorter repayment term. Bad credit mortgages are offered over any term up to 25 or 30 years. If you can get 20 years then go for it. You will pay more in interest if you borrow over 20 years rather than 10 or 15, but your repayments will be a good bit less and more affordable. It is better to comfortably pay over 20 years than to struggle for about 8, default and then lose your home. OK, you pay more interest, but you still have your home, and the repayments will seem less as the years go by and you earn more money.

3. Arrange to pay your mortgage by standing order or direct debit. Then ask the mortgage company to date the payments to be the same as your pay day. Whether you are paid weekly or monthly, it doesn’t matter. Your repayments will be monthly so arrange them for as near as possible to your pay day. If you always get paid on the 1st of the month, for example, arrange the direct debit to be paid on that day. If it is the last day, then make them for the 1st of every month, since regular payments are paid on a specific date each month.

By doing that your account will always have money in when the mortgage is due. A lot of defaulters pay their mortgage towards the end of the month, a few days before their monthly salary is paid into their bank account. By then there is nothing left in the account, and the payment defaults. It is sometimes very easy to either spend too much or to forget other regular payments, so arrange your mortgage be paid ASAP after your salary or wages are lodged in your account so that this cannot happen.

Bad credit mortgages are to be regarded as your ‘Last Chance Saloon’ and you must keep up the payments or you will be taken to court, and never get credit again. However, if you treat them with care, they will work for you, not only by allowing you to purchase your home, but also by helping to repair your credit record.