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Understanding Your Bad Credit Mortgage Refinancing Options
Author David Schneider | Nov 14,2007
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You will have several mortgage options to choose from when you are shopping for a bad credit mortgage. You will need to select from fixed or variable interest rates, you will need to select between monthly and bimonthly mortgage payments and you will need to determine whether you want to pay more money up front or more money during the life of your loan. In order to select the best bad credit mortgage options, you first need to understand what they are.
Fixed Rate vs. Variable Rate
The first bad credit mortgage options that you will need to select between are fixed rate APRs and variable rate APRs. A fixed rate APR is an interest rate that is locked in when the loan is taken out. It does not change during the life of your mortgage, regardless of changes made to financial indexes. On the other hand, variable rate APRs change periodically based on changes made to the financial indexes.
Monthly vs. Bi-monthly Mortgage Payments
The second option that you need to examine is how frequently you make your mortgage payments. Most homeowners select the monthly payment option. This option requires a single monthly payment that is made up of principal and interest charges. The second option is a bi-monthly mortgage payment. This option requires two mortgage payments to be made each month. Each payment is half of the amount of the monthly mortgage. The advantage of this option is that you pay off your mortgage faster.
Higher Closing Costs vs. High Interest Rates
The final option that you will want to look at is whether you want to pay higher closing costs or if you want to pay a higher interest rate. If you don’t have a lot of money to get into your home, then you will want to minimize your closing costs. This can be done by agreeing to pay the initial interest rate presented by the bad credit mortgage lender. However, if you have money to use for closing, then you can pay down your mortgage rate. Generally, you will need to pay one point, or one percent, of your mortgage amount to reduce your APR by .25 point to .5 point.
You will have several mortgage options to choose from when you are shopping for a bad credit mortgage. You will need to select from fixed or variable interest rates, you will need to select between monthly and bimonthly mortgage payments and you will need to determine whether you want to pay more money up front or more money during the life of your loan. In order to select the best bad credit mortgage options, you first need to understand what they are.
Fixed Rate vs. Variable Rate
The first bad credit mortgage options that you will need to select between are fixed rate APRs and variable rate APRs. A fixed rate APR is an interest rate that is locked in when the loan is taken out. It does not change during the life of your mortgage, regardless of changes made to financial indexes. On the other hand, variable rate APRs change periodically based on changes made to the financial indexes.
Monthly vs. Bi-monthly Mortgage Payments
The second option that you need to examine is how frequently you make your mortgage payments. Most homeowners select the monthly payment option. This option requires a single monthly payment that is made up of principal and interest charges. The second option is a bi-monthly mortgage payment. This option requires two mortgage payments to be made each month. Each payment is half of the amount of the monthly mortgage. The advantage of this option is that you pay off your mortgage faster.
Higher Closing Costs vs. High Interest Rates
The final option that you will want to look at is whether you want to pay higher closing costs or if you want to pay a higher interest rate. If you don’t have a lot of money to get into your home, then you will want to minimize your closing costs. This can be done by agreeing to pay the initial interest rate presented by the bad credit mortgage lender. However, if you have money to use for closing, then you can pay down your mortgage rate. Generally, you will need to pay one point, or one percent, of your mortgage amount to reduce your APR by .25 point to .5 point. |
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