A mortgage with bad credit is a financial risk for both the borrower and the lender. The lender, however, takes the most risk, thus they charge the most fees and interest for these type of mortgages. Sometimes interest rates for mortgages for bad credit run as high as credit card interest. If you can’t imagine putting your house on your credit card, then a bad credit mortgage isn’t the right fit for you. If you’re still thinking about having a high interest mortgage, knowing the costs may deter you.

Mortgage Loans Bad Credit Interest Rates

A bad credit mortgage interest rate is based upon the credit score of the borrower. The lower the credit score the higher the interest will be. The rates of interest begin where the treasury department sets them. It’s up to individual lenders and the state laws as to how high they can go. Some states set a ceiling rate at 10% and some states the ceiling is as high as 25-30%. Calculating an amortization of 30 years at just 10% interest means you, the borrower, pay nearly $432,000 in just interest. If the interest went as high as 15%, the borrower would pay nearly a million dollars, $710,000 of that would be in interest alone. Compare that to a 6% interest loan, someone with good credit might garner, and the interest total is only $231,000. This means that mortgage loans with bad credit cost a borrower 2-3 times more than good credit mortgages.

Mortgages Bad Credit Alternatives

Repairing your credit is an alternative to obtaining mortgage loans with bad credit. You may have to wait 12 months or more to finance a house, but the savings would make up for it. Just waiting a year and repairing your credit can save $400,000 on a mortgage loan.

There are hundreds of ways to repair credit; however, the most viable way is by contacting a consumer credit counseling organization. It’s important to go through a reputable company so the repair is done legally and you’re not taken advantage of by the counseling organization. A list of trustworthy companies can be found by visiting the Better Business Bureau’s website.

Another alternative to repairing your credit is to get a free credit report and dispute any inaccurate information. Every claim is required by law to be investigated.

Poor credit can sometimes mean being taken advantage of by shady mortgage brokers. These brokers get thousands of dollars in fees by getting borrowers to sign contracts with enormous interest rates. Brokers get paid higher bonuses with the higher interest percentages. Along with those bonuses, they often get fees for other services. Read the contracts carefully and check with the Federal Trade Commission on how to repair your credit. Simply raising your credit score from 500 to 600 will save hundreds of thousands of dollars in the lifetime of a loan. Knowing you’re getting the best interest rate on your loan will give you the opportunity to save money. Imagine being able to save $400,000 in a savings account over 30 years instead of paying it out in interest.

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