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How Can I Get A Better Interest Rate With Poor Credit?

By Bob Redtree

For people with poor credit, finding an affordable mortgage can be difficult.  While interest rates are almost always going to be higher for people with bad credit, there are several ways that a person with bad credit could get a better interest rate.

Get and Adjustable Rate Mortgage

Getting an adjustable rate mortgage is the first way that you can get a better interest rate with poor credit.  Interest rates on a 5-year adjustable rate mortgage are often 1.00% to 1.50% lower than a fixed rate mortgage.  While you run the risk that your mortgage rate could jump after the adjustment period, you will have a few years to improve your credit and refinance into an affordable fixed rate mortgage.

Choose a Shorter Amortization Period

Choosing a mortgage with a shorter amortization period is the next way that you can get a better interest rate with poor credit.  Interest rates on a 15-year or 20-year mortgage are often 0.50% lower than those on a 30-year mortgage.  While your monthly payment may be higher with one of these mortgages, you will pay far less in interest and will pay off your mortgage much quicker than with a 30-year amortizing mortgage.

Put More Money Down

Putting forth a larger down payment is the next way that you can get a better interest rate with poor credit.  The main reason why your interest rate is higher with bad credit is because you are considered a larger risk to the bank.  If you put down a down payment of 20% or more, you will be considered less of a risk and the bank will reduce the interest rate to reflect the reduced risk.

Related posts:

1. Is It Possible To Buy Down An Adjustable Rate Loan?
2. What Factors Affect How Much My Mortgage Payments Will Be?
3. What Is a Pay Option Negative Amortization Adjustable Rate Mortgage?
4. Can I Take Advantage Of Low Mortgage Interest Rates With Bad Credit?
5. How Can I Get A Good Mortgage Interest Rate With A Bad Credit Score?