If you have credit problems in your past and a low credit score, if you decide you want to refinance or get a home equity loan, you will probably need to work with a subprime mortgage lender. Subprime mortgage lenders are willing to work with those with lower credit scores and past credit problems. They charge interest rates that are slightly higher than the prime rate. When you work with a suprime lender, you will need to be careful of a few things. Subprime mortgage lenders sometimes take advantage of borrowers with poor credit and charge excessive fees or offer terms that are not reasonable.
Be careful of these things when applying for a new refinance or home equity loan:
1. Watch Out For The Pre-Payment Penalty - Most sub-prime mortgage loans have a pre-payment penalty attached. That means that if you decide to either sell your home or refinance your home anytime within the designated period of time, you will have to pay a penalty which is usually equal to about 6 months of interest or mortgage payments. If you are ok with a pre-payment penalty, make sure you know exactly how long that allotted amount of time is and exactly how much the penalty is. A penalty is usually for anywhere from 6 months to 2 years. But, a penalty that is two years or longer, in some cases, might be considered excessive.
2. Watch Out For Junk Fees - Many times in sub prime mortgage loans, a broker will tack on excessive fees that are not completely necessary. Have your mortgage broker go through all of the fees one by one and make sure you understand where all the fees are going. Educate yourself on what fees are completely necessary and which ones are not. Go to mortgagesanity. com for a list of junk fees that sometimes get added to mortgage loans. Also, educate yourself on the average cost of such fees to avoid being charged an excessive amount.
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