Adjustable Rate Mortgage Interest Only Bad Credit

ype "adjustable rate mortgage interest only bad credit" into any search engine and you will be bombarded with plenty of lenders willing to take a look at your loan application. Before leaping onto the interest only ARM bandwagon, however, you should first consider if this mortgage product is really the best fit for your needs.

Bad Credit and Mortgages
If you have several dings on your credit then you can safely assume that you will pay a higher interest rate and more fees for a mortgage loan. This is because you are a higher risk to lenders, based on your credit history. Factors on your credit report which make you a high credit risk include:

* Late payments
* Overextended credit lines
* Excessive credit accounts in relation to your income

If you aren't sure what the status of your credit score is then you should pull a copy of your credit report before your apply for a mortgage loan. It may turn out that you have better credit than you thought…or you may have such bad credit that you may decide to rent a while longer while you diligently work to improve your credit score. You can check your credit score at one of the three major credit bureaus:
You should never apply for a mortgage loan without first checking your credit report to make sure everything listed is accurate. Errors can transform an average credit report into a bad credit report.

Adjustable Rate Mortgages
Adjustable rate mortgages can be tricky because you are really taking a gamble with which way interest rates will go after you secure the mortgage. Although some mortgage experts herald ARMs as a fantastic way for people to obtain larger loans than they would qualify for with a fixed rate mortgage, you need to take into consideration the fact that your monthly payment can increase exponentially after the initial fixed rate period. If you aren't ready to pay a substantially higher amount monthly for your mortgage payment then a significant increase can throw you into financial peril.

Of course a smaller monthly payment is always possible if interest rates fall, and this would be a welcome surprise for borrowers

Interest Only Mortgages
An interest only mortgage involves payments going toward the interest on the loan and not the principal balance, which effectively means that even though you make payments each month you never touch the actual balance that you owe on your home. If you buy a house for $150,000 and for five years only pay interest, then you still owe $150,000 unless you make additional payments toward principal.

Why do people apply for interest only mortgages? Paying only interest allows you to pay substantially less per month than you would if your payments were being applied to both interest and principal. Although this system may work for borrowers who will diligently apply extra payments toward the principal balance, it is not generally suggested as a long-term loan because the time will come when the amortization expires and you still owe a considerable sum.

Combine Adjustable Rate Mortgage Interest Only Bad Credit
When you combine all of the factors, you're looking at a risky mortgage loan. Here is why:

1. Bad credit loans have higher interest rates and higher fees.
2. Adjustable rate mortgages have the potential to have higher monthly payments later in the life of the loan.
3. Interest only mortgages can have higher fees, and payments don't go toward principal unless you make extra payments.

Although it isn't realistic for some potential applicants, a much better idea is to:

* Take the time to fix your credit before applying for a mortgage loan, because this will result in lower interest rates and less fees.
* Apply for a fixed rate mortgage with the shortest amortization you can afford, because this will avoid any rude surprises from sudden interest rate increases.
* Choose a mortgage loan which allows you to pay toward principal with each payment, and make an effort to make additional principal payments when possible.

Not everyone is in the position to be able to secure an ideal mortgage loan, but regardless of your credit history you should still take the time to find the best mortgage loan possible.