If you had bad credit when you obtained your mortgage loan, it might be worthwhile to look into getting a better mortgage if you feel your credit score is much better today. The mortgages that lenders offer is vastly based on a person's credit. In other words, having great credit will typically yield a much lower interest rate on a loan than having bad credit. If your credit was less than stellar when you took your initial loan, here are a few things to think about.
Lenders base interest rates on risk
People with great credit obtain lower interest rates simply because their risk level is considered lower than people with bad credit. When mortgage lenders offer loans, they are relying on the borrowers to repay them. If you had bad credit, a lender would have compensated for this risk by offering you a loan with a higher interest rate. As your credit improves, you may begin qualifying for better loans.
How interest rate affects your mortgage payments and total loan repayment amount
It's quite interesting to look at the effects interest rates have on your mortgage payments and total amount repayment amount. If you compared a $200,000 mortgage with a 3% interest rate to one with a 5% interest rate, the differences are astronomical. The loan with the higher rate will have much higher payments, and this loan will require repaying a much larger total amount over the entire term of the loan.
Ways to know if you are ready to look for a new loan
While the loan you took years ago might have been the only option you had, you are not tied to that loan forever. In fact, you are free to find a better mortgage at any time, as long as your loan does not have an early repayment penalty clause (also called a prepayment penalty clause). Even with a clause like this, you can still choose a new mortgage; however, you will incur fees if you do.
The best way to find out if you would qualify for a better mortgage is by talking to a lender about it. You may also want to look up your credit score to see how your credit is today. A lender will be able to tell you what types of loans you qualify for, and you can compare these options to yours to see if they are better for you.
If you are paying a high interest rate on your current mortgage, you should talk to a lender to find out if you now qualify for a better mortgage loan. Check out companies like I Want A Better Mortgage to learn more.
Share13 March 2017
When I began my first business selling sports equipment locally, I knew the sports-world well, and I knew how to run a business. One thing I did not know a lot about was the financial world. I had never applied for a loan in my life other than when I financed my car with the dealership in-house financing. My first application at a large bank was denied. I began looking into my other options, and I found that there were more lenders for new businesses than I realized. I applied at local credit unions, local banks, and other business lending services. I was able to secure more funding than I even expected, and my credit is just average. I created this blog to help other new business owners realize that there is funding out there. You just have to find it and apply! Don't give up on your dream.