If you’re in the market for a home and you’ve got bad credit, there are at least 10 reasons why you shouldn’t buy just yet. The most significant reason is the interest rates are ridiculously high. A bad credit mortgage will cost nearly double what a normal credit loan would be and nearly triple what a good credit mortgage would cost. Bad credit mortgages are the last type of mortgage anyone should take out. They may, in fact, cause you to go further into debt, lose your home and damage your debt even more.

Bad credit mortgage loans typically have interest rates which match credit card interest rates. Typical bad credit mortgage interest rates are, at their lowest, 10% and at their highest 30%. When the average mortgage is around $249,000, depending on the city or state, and the length of a mortgage ranges from 20-30 years, an interest rate of 20% will cripple anyone’s wallet. Even at 15% interest and a $150,000 loan, the monthly payments would be astronomical.

Let’s take a look at the actual figures for a loan for a bad credit mortgage. Assuming a loan of $120,000 at a 20 year amortization, (a 20% down payment on a $150,000 house), at a low rate of 15% interest, the monthly payment would be $1,580.15 and the interest paid over the 20 years would be $259,232.85. That’s more than double your original costs. Spread out that out over 30 years and the payments lower to only $ 1,517.33, but the interest paid goes to a whopping $426, 258. Once you know the interest paid, it’s easy to see why a bad credit mortgage is a terrible idea. Alternatively, reducing the interest rate is a much better option that increasing the time period of the loan.

As mentioned, drawing a loan out over 30 years only drops your monthly payment by about $62.82. Reducing your interest rate by just 1%, assuming the same 20 year period, reduces your monthly payment by $82.93. Improving your credit rating enough to get a 10% interest rate saves nearly $425 a month and $268,334. There are some simple things to do in order to improve your credit rating and start saving money before applying for your loan.

Paying off any debts where the limits are low. Many lower limit cards are actually worse than one higher limit card. Reducing your debt to income ratio can significantly increase your chances to get a lower interest rate (this is your monthly recurring debt divided by your gross monthly income). Lastly think about saving for a large down payment. Typically a bad credit borrower will be required to put down 20-50% in a down payment, so it’s a good idea to plan early for that eventuality.

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