High Risk Mortgage Loans - Pros and Cons of Getting a Mortgage with Bad Credit
How High Risk Mortgage Loans Help Borrowers?
1. Chance to Re-Establish Credit
A high-interest mortgage may seem like a bad deal. However, acquiring a home loan is one of the fastest ways to improve a low FICO score. Make on-time payments for 24 consecutive months and you'll be able to refinance the mortgage and qualify for a better rate. In the meantime, the property will gain equity, and you won't throw money away on rent payments. Talk to your mortgage lender or broker about specialized credit repair home loan programs, wherein borrowers with a good payment history may be eligible for a rate reduction after a certain amount of months.
Disadvantages of a High Risk Mortgage Loan
1. Higher Default Rate
An individual with less-than-perfect credit usually has a history of poor money management or late payments. When approved for a home loan, the pattern may continue and the borrower may be unable to meet their financial obligation. Predatory lenders don't care about the borrower, and will approve dubious loans. That's why each home buyer needs to truthfully assess their situation and purchase a home within their financial reach.
2. Risk of Negative Amortization
To get a bad credit borrower qualified for a home loan, some lenders suggest loan programs with unattractive terms. For example, select mortgages allow borrowers to pay less than the interest due each month. This provision lowers the monthly payments, wherein the borrower can afford the property. However, many lenders fail to point out a crucial aspect about this type of mortgage. Instead of a monthly amortization, in which the mortgage balance decreases, negative amortization occurs. The balance will increase each month, and the borrower will continually owe more money.
Related Tags: bad credit, mortgage loan, subprime
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