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Benefits Of Fixed Rate Mortgages For Those With Bad Credit
Author David Schneider | Jan 07,2008
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Buying a home is probably one of the biggest decisions in your life, next to marriage and having children. It is without doubt the most expensive purchase you'll make in your lifetime, at least for most people. In addition, the responsibility can often weigh heavily on someone who doesn't look at all of his or her options before buying a home. In many cases, the potential homeowner is so caught up in the excitement of the process that he or she never asks the right questions before signing on the bottom line. One such question is, "Am I eligible for a fixed rate mortgage?"This is the situation for many homebuyers with bad credit. Mortgage companies will often try to get an applicant with bad credit into an adjustable rate mortgage (ARM) simply because it may be easier to get them approved. If you have bad credit, an ARM may not be a good idea. In fact, you could find yourself in worse financial shape in just a few years' time. Let's look at the benefits of fixed rate mortgages for those with bad credit.Why Choose a Fixed-Rate Mortgage If I Have Bad Credit?Simply put, your payment is your payment. The payment that you agree to at the time of closing is going to be your monthly payment for the next 30 years (barring any late fees or missed payments, of course). Having a solid number that you can work with in terms of a monthly budget is key for people with bad credit. When the payment amount fluctuates, as it does with an adjustable rate mortgage, people with bad credit tend to have a more difficult time reacting to the change.Don't Fixed-Rate Mortgages Have Higher Interest Rates Than ARMs?While traditionally, fixed rate mortgages do feature slightly higher interest rates than ARMs, history shows that over the length of the loan, the average interest on an adjustable rate mortgage and a fixed rate mortgage are very similar. Remember that the interest rate on an ARM can increase or decrease, sometimes dramatically, at any time. Since ARMs have fixed interest for the first two, three or five years, many homeowners are ill prepared for when the loan transfers from the fixed interest to the adjustable rate. Depending on the market, homeowners with an ARM could see their interest rate escalate as much as six percent. The result is a mortgage payment increased by hundreds of dollars per month.It is beneficial for people with bad credit to choose a fixed rate mortgage because it allows them more control over their finances. It also helps them buy a home within their means. Since most people will make more money as each year passes, if you can afford your mortgage when you first get it, then you should certainly be able to afford it in the future. On the other hand, if you don't know what your payment will be in the future, it can be quite difficult to make that decision.Repairing Bad Credit With a Fixed Rate MortgageBuying a home and making the mortgage payments on time is one of the quickest methods to repairing your credit. If you have slightly damaged credit, your mortgage payment can quickly get you on the road to credit repair. You can accomplish this much easier through a fixed rate mortgage.In addition, since you can afford your mortgage from the onset with a fixed rate, it provides you the opportunity to begin paying more than the required amount. This can save you thousands of dollars in interest charges.The dream of home ownership is one of the primary driving forces in U.S. Homes come in a wide variety of shapes and styles and finding one is half the fun. When you move into your home, there's not another feeling quite like it. If you have bad credit and still want to realize the dream of your own home, ask for a fixed rate mortgage. The security of knowing what your payment will be month after month can help you go from being a homebuyer with bad credit to a homeowner with great credit!
Buying a home is probably one of the biggest decisions in your life, next to marriage and having children. It is without doubt the most expensive purchase you'll make in your lifetime, at least for most people. In addition, the responsibility can often weigh heavily on someone who doesn't look at all of his or her options before buying a home. In many cases, the potential homeowner is so caught up in the excitement of the process that he or she never asks the right questions before signing on the bottom line. One such question is, "Am I eligible for a fixed rate mortgage?"This is the situation for many homebuyers with bad credit. Mortgage companies will often try to get an applicant with bad credit into an adjustable rate mortgage (ARM) simply because it may be easier to get them approved. If you have bad credit, an ARM may not be a good idea. In fact, you could find yourself in worse financial shape in just a few years' time. Let's look at the benefits of fixed rate mortgages for those with bad credit.Why Choose a Fixed-Rate Mortgage If I Have Bad Credit?Simply put, your payment is your payment. The payment that you agree to at the time of closing is going to be your monthly payment for the next 30 years (barring any late fees or missed payments, of course). Having a solid number that you can work with in terms of a monthly budget is key for people with bad credit. When the payment amount fluctuates, as it does with an adjustable rate mortgage, people with bad credit tend to have a more difficult time reacting to the change.Don't Fixed-Rate Mortgages Have Higher Interest Rates Than ARMs?While traditionally, fixed rate mortgages do feature slightly higher interest rates than ARMs, history shows that over the length of the loan, the average interest on an adjustable rate mortgage and a fixed rate mortgage are very similar. Remember that the interest rate on an ARM can increase or decrease, sometimes dramatically, at any time. Since ARMs have fixed interest for the first two, three or five years, many homeowners are ill prepared for when the loan transfers from the fixed interest to the adjustable rate. Depending on the market, homeowners with an ARM could see their interest rate escalate as much as six percent. The result is a mortgage payment increased by hundreds of dollars per month.It is beneficial for people with bad credit to choose a fixed rate mortgage because it allows them more control over their finances. It also helps them buy a home within their means. Since most people will make more money as each year passes, if you can afford your mortgage when you first get it, then you should certainly be able to afford it in the future. On the other hand, if you don't know what your payment will be in the future, it can be quite difficult to make that decision.Repairing Bad Credit With a Fixed Rate MortgageBuying a home and making the mortgage payments on time is one of the quickest methods to repairing your credit. If you have slightly damaged credit, your mortgage payment can quickly get you on the road to credit repair. You can accomplish this much easier through a fixed rate mortgage.In addition, since you can afford your mortgage from the onset with a fixed rate, it provides you the opportunity to begin paying more than the required amount. This can save you thousands of dollars in interest charges.The dream of home ownership is one of the primary driving forces in U.S. Homes come in a wide variety of shapes and styles and finding one is half the fun. When you move into your home, there's not another feeling quite like it. If you have bad credit and still want to realize the dream of your own home, ask for a fixed rate mortgage. The security of knowing what your payment will be month after month can help you go from being a homebuyer with bad credit to a homeowner with great credit! |
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