Sub-prime rates

Mortgages are not only for people with perfect credit histories. Flaws are accepted within the industry, but they come at a price. If you have had significant credit issues within the last seven years, you will probably have to settle for a sub-prime mortgage.

Sub-prime mortgages have one particularly noticeable feature: high interest rates. Basically, you are being charged more than your peers because of you are considered something of a risk; in other words, your lender is not convinced that you will make regular mortgage payments.

For a long time, the high interest rates associated with sub-prime loans were illegal. Only recently has their legitimacy been recognized. While these loans can certainly be used to help people who have been subject to hard circumstances, they can also be used by unsavory lenders to take advantage of low-income borrowers. If you are a sub-prime candidate, make sure that your lender has a good reputation within your community.

With a sub-prime loan, much of your monthly mortgage payment will be devoted to paying for the interest. Over time, the accumulation of that interest can be staggering. For that reason, it is a good idea to make extra mortgage payments whenever possible, and also to refinance for a better rate once you have straightened out your financial problems.

Of course, it would be even better to simply wait until you can obtain a better rate. A clean credit history will help you secure a lower interest rate, which in turn will make your mortgage payments more reasonable. When in doubt, ask your lender for a frank assessment of your best option.