Bad Credit Mortgage Rates
When considering a range of mortgage products you really need to look at the differing kind of ways of paying interest.
You will probable find one type of product that suits your circumstances better than another.
This can depend on whether you need to be certain of exactly how much you’ll be paying each month to give you certainty when budgeting the monthly finances.
Alternatively your situation may dictate that you’re always looking for the lowest rate possible to minimise your monthly outgoings today rather than worrying about future events.
The best thing to do when looking for a bad credit mortgage or bad credit remortgage is ask your expert broker about the different rates offered by the specialist lenders. They keep an eye on market trends and the underlying direction of current interest rates.
How are bad credit mortgages set?
Well basically they work the same as ordinary mortgages except they interest rate is likely to be higher due the higher risk involved to the lender. For example a Standard Variable Rate (SVR) is a mortgage rate set by the bad credit mortgage lender that decide the interest rate.
The bad credit mortgage lender bases its SVR on the Bank of England base rate - often between 2 and 6 per cent higher. Therefore if thebase rate changes, the SVR also changes.
The benefit of the SVR mortgage is that if interest rates fall, so do your mortgage repayments.
Conversely the negatives are if rates rise, so do repayments, and there is no ceiling on how high the rates can rise – remember the 1980’s when rates shot up to 15%?
High street mortgages and bad credit mortgages differ via rates on the following categories:
A tracker rate mortgage is a mortgage that tracks another rate - usually the Bank of England’s base rate or LIBOR. The advantage here is that should the Bank of England’s base rate or LIBOR base rate be cut, you’ll immediately benefit. This negates the need to rely on mortgage lenders to pass on the savings as and when they decide to reduce their SVR.
Another category is capped rate mortgages. These mortgages guarantee the interest rate charged will not rise above a certain capped level. The plus is it may fall in line with variable rates. So it’s often argued that capped rate mortgages are offer the best of both variable and fixed rate deals.
You have to agree to a cap on the maximum amount of interest you will pay over a set period of time while allowing it to fall if the variable rate drops. The protection kicks in when the variable rate goes higher than your agreed capped rate so you’re only paying up to the set capped rate.
In addition if the variable rate falls below your capped rate then you pay less as well, what a result! However these are rarely available for anyone with a bad credit so be warned.
The final category is a discount rate mortgage. These are based on the mortgage lender’s SVR and offer a discount of a certain percentage below the SVR for a set duration. After this set period finishes interest on the mortgage is charged at the lender’s SVR. These deals can be particularly good for the initial period, usually one or two years.
However where bad credit mortgages are concerned it is often a fixed rate mortgage that is preferred by people in a bad credit situation as they feel good with payment security safe in the knowledge that for a set period of time they know exactly what their monthly mortgage payments will be – it provides peace of mind.
So it doesn’t matter what happens to interest rates or to the economy as they know their monthly payments will not change.
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