Payback Time! The Bad Credit Rating Mortgage

One of the key issues with a bad credit rating mortgage is how you are going to pay it back. There are several aspects to this question, depending on how stable your finances are. One of the early decisions when taking out a bad credit rating mortgage is whether you are going to go for interest only repayment or capital and interest repayment. Each method has its advantages for your bad credit rating mortgage.

For example, if you have been in financial difficulty, which may have led to your needing a bad credit rating mortgage in the first place, then you may decide to go for interest only as a repayment method. This is available with most bad credit rating mortgage deals and it has the advantage of keeping your mortgage payments relatively low.

Interest only repayment is a good thing if you are struggling financially, though it can have serious consequences in the medium to long term. This is because if your bad credit rating mortgage is on an interest only basis you will not be clearing your mortgage debt with your payments. This may provide short term financial assistance, but for long term financial health you will need to clear some of the debt as soon as possible. This is why it is sensible to go for a capital and interest repayment method on your bad credit rating mortgage. This means that from the moment you make your first payment you begin to clear the debt on the mortgage.

This is even more useful if you manage to land a flexible mortgage deal for your bad credit rating mortgage. A flexible mortgage deal will allow you to take advantage of fluctuating finances by overpaying and underpaying when it is appropriate to do so. You may have to apply to underpay or take payment holidays, but since it is allowed within the terms of your bad credit rating mortgage, if you stick to the rules your credit rating should not be damaged any further. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

Bad Credit Mortgage Interest Rates

Once the repayment method for your bad credit rating mortgage has been decided, it's time to think about the interest rate you would like to have. In a nutshell, rates are either fixed or variable. A fixed rate lets you have the security of fixing your interest payments for a set period. This is usually between two and five years for a bad credit rating mortgage, though some lenders offer longer deals. Variable rates are usually discounted, tracker or standard. The standard variable rate is exactly what it sounds like and discounted rates offer a discount off this rate. Tracker rates track the Bank of England base rate by a set percentage, usually above, though discount trackers can be below. Interest rates for a bad credit rating mortgage may also be capped (so they don't rise above a certain threshold) or collared (so they don't fall below a certain threshold). Understanding interest rates and repayment methods is essential to make the most of your bad credit rating mortgage.

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