Bad Credit? Understand the Benefits of a Fixed-Rate Mortgage

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Though your options are limited when shopping for a bad credit mortgage, you will find that you do have several types of home loans from which to choose.

The Upside to Fixed-Rate Home Loans for Bad Credit Borrowers

Fixed-rate home loans have a number of benefits, but the most important feature is that the interest rate on a fixed-rate home loan won't change. This means that your payments will stay the same for the life of the loan. For bad credit borrowers this can be an advantage as you can easily budget for your monthly mortgage payments and there will be no surprises.

The Downside

There are pros and cons to every home loan available. For a fixed-rate mortgage the downside is the same feature listed above: the rate doesn't change. In today's fluctuating market mortgage rates can go up and down. With other home loan types you can benefit from these changes. As rates go down, so can your payments. Also, unless you plan on having bad credit forever, you will eventually fix up your credit and be eligible for much more favorable terms. So paying extra for a 30 year fixed loan may make little sense.

Other Bad Credit Home Loans To Consider

Some of the other mortgage options that might be available to you are:
  • Interest only mortgages, which lower your payment for a time by requiring that you pay only the interest on your home loan--not the principal balance.
  • Adjustable-rate mortgages, which give you a low introductory interest rate that later can go up or down.
  • Hybrid loans--these loans usually offer you choices between payments so that you can have some flexibility. They can include the features of all the loans listed here.

Consider Carefully

There could be a number of reasons why your credit is bad. Mortgage lenders understand that life happens and most will do their best to work with you to find a home loan that fits your situation. Bad credit mortgages are not "one size fits all." You have to make a choice between what's available to you based on your bad credit. As you shop around for your home loan, consider your budget and income when you make your selection.

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