A to Z of Bad Credit Mortgage Loan

Mortgage Loan

One of the most sought after loans by property owners are mortgage loans. It is specific, as people who have no property to pledge cannot go for a mortgage loan. The main reason why a mortgage loan is beneficial to both the borrower and the lender is that it helps the lender secure the amount he paid to the borrower and can fall back upon the property where the borrower fails to repay the money and having offered a security for the payment received the borrower can negotiate with the lender for the best of deals quoting the lowest interest rate possible. Do you know that you can take a second mortgage on the property which has already been subject to mortgage? Yes, it is called the second mortgage. A property subject to second mortgage is denoted as say, 80:20, which means 80%of the property value goes for the first mortgage and the remaining 20% towards the second mortgage. This mortgage is helpful in making some cash for certain emergency money requirement. It is obvious that with the percentage of security offered you cannot take loan for refinancing your entire mortgage loan.

Refinance Mortgage Loan

A mortgage loan can be refinanced. Where you find the terms of the existing loan is not favorable and a refinance loan can certainly help you put your financial condition back on track you can go for a mortgage refinance. The same property subject to mortgage under the first loan is the property pledged in the new refinance loan.

The terms of the loan are more favorable such as lower interest rate, flexible repayment term and easy repayable installment.

Bad Credit Mortgage Loan

All of the above said loans are offered to borrowers with bad credit report also. Except that the terms of loan may have certain restrictions placed on loans offered to poor credit borrowers. It is obvious that the interest rate will have premium for covering the risk factor involved. Again, the terms of a bad credit mortgage loan are more favorable than a regular bad credit loan, due to the fact that the former loan is offered a security for the amount borrowed.

Application Process

Terminologies

Having explained the basic idea behind a mortgage loan whether regular or a bad credit mortgage, here we are trying to explain some of the other frequently used terminologies in a mortgage loan transaction which will be useful.

• Mortgage interest rates – The rate at which a mortgage loan is offered to the borrower. In other words the cost of borrowing. Certain index is followed while arriving at the mortgage rate.
• Credit score – The credit points earned by the borrower as a result of his previous credit transactions. A positive and excellent score helps in availing the most favorable terms of loan, while a negative or a poor credit score is a detriment to borrowing.
• Fixed- Rate Mortgages (FRM) – These are mortgages which carry a fixed rate of interest throughout the loan term. These rates are slightly higher.
• Adjustable Rate Mortgages (ARMs) – Adjustable rate mortgages vary depending on the market. It is directly proportional with the market rates. Though the rates are low initially, it may increase in the future.
• Two-Step Mortgage – These mortgage loans are offered in two steps. Initially the principal repayment and the interest payment are fixed at a certain level which is later increased after certain number of years.
• Convertible ARMs – A beneficial mortgage plan which allows a borrower to shift from an ARM to FRM where the rates are on the rise.
• Balloon Loans – These loans requires you to only pay the interest throughout the period of loan and at the end of its term repay the principal in a lump sum.
• Graduated Payment Mortgages (GPM) – Under this mortgage the repayment installment increases gradually, where initially you only pay the interest and an amount less than the interest amount towards the principal which is gradually increased over a period of time.

With the detailed list of options discussed above, I am sure you will benefit in making an informed decision about the various bad credit mortgage options available.