Looking for a new mortgage when you have a history of bad credit is not as difficult as you might think.
For one thing, the big institutional lenders have business goals to meet and as anyone who has worked in one of them knows, month by month the sales departments that under-perform are held to account for why they have not achieved their sales targets. This pressure is put on staff because there is pressure on the bank’s bottom line: they have cash-flow issues and must make repayments on money they have themselves borrowed to invest and profit from. So they are always looking for new customers who will pay for their services, They need to find homeowners who want to refinance and first home owners who need to borrow.
Inside the mind of the lender
In this frenzy of sales, someone with a less than perfect record of borrowing will at least be considered by the banks. If their unfortunate history was just that — something that happened a long time ago — the banks will be prepared to put more weight on the borrower’s present circumstances. And if they come with equity in property, then a bank can almost certainly work out a loan agreement.
And that is the second reason why people who need bad credit loans should be fairly confident about getting one: their record of bad debt is just one factor in a list of things that will be considered by the banks and other lenders. Things like current income, recent repayment history, equity in a home or other assets and so on also become important.
So that is for the banks to think about. There are some other things that you, the borrower, should be considering if you have a bad credit record and are looking for a new mortgage or a loan.
Key considerations for the borrower
One thing you should talk about with a good broker is the length of mortgage term.
For example a 15-year mortgage will be amortized over a relatively short period (25-year mortgages, in comparison, are common) and so equity builds quicker and there are less interest expenses.
The repayment schedule and mortgage type
Another point, by repaying a mortgage every two weeks, as many sharp brokers will advise their clients to do, the length of a 30-year loan decreases by approximately 11 years. With all of the interest savings that go with that!
Further, a fixed-rate mortgage helps reduce the risk of future rises in the interest rate. But you can also negotiate adjustable-rate mortgages. These have variable interest rates based on a parcel of economic predictors. Some of these loans will permit you to transfer to a fixed-rate mortgage, most commonly in the first five years of the life of the loan.
How a good broker can help you
A good broker can help you in a number of ways, as especially if you have an imperfect borrowing history and need a bad credit loan. He will be able to quickly give you the interest rates and fees charged by different lenders. He will explain to you what the annual percentage rate (the APR) is and compare them. He will walk you through the negotiations with the lender. So, go ahead and talk with a broker if you have not already got one. Even with a poor credit history a broker can help you secure a bad credit loan on as favourable terms as is possible currently.