Low Interest Rates May Favor Bad Credit Borrowers
Mortgage Interest Rates Low for Borrowers with Good Credit
Yesterday, Bankrate.com showed that the interest rate for 30-year-fixed mortgage is up .03% from last week, but it is still at a low 3.88%. Of course, this 3.88% interest rate is assuming you have good credit. If you have bad credit, you will probably be offered interest rates higher than 3.88%.
Having bad credit has always come with some disadvantages, from fewer loan options to higher interest rates.
The necessity of a loan, and how long you can wait until you get it, depends on your situation. Some people can wait until their credit improves to buy a home; some might need to take out a home loan right away.
Good News for Bad Credit: The Silver Lining of Today’s Economy
Bloomberg reminded us that 10 years ago, the 30-year fixed interest rate for a mortgage loan was 8%. 5 years ago the interest rate was 6.5%.
Even if your bad credit prevents you from getting the all-time-low interest rates that are being offered today, you may still be offered a relatively low rate on a 30-year mortgage when compared to rates offered 5 to 10 years ago.
Low Interest Rates: Good for Bad Credit, Bad for Unemployed and Underemployed
If you have a stable job, decent income and you are just struggling with bad credit, you can still benefit from the lower interest rates.
Unfortunately, interest rates are so low is because there is less demand. This means that less people are trying to get mortgage loans. At the end of 2011, the Mortgage Banker’s Association (MBA) reported an overall decrease in applications to refinance home loans or obtain mortgage loans in the last week
In order to be eligible for a mortgage loan, you must be employed with a steady income. Today’s economy has left many unemployed, and now it is harder than ever to obtain a mortgage loan if you are unemployed or underemployed.
Bad Credit Options Aren’t So Bleak
If you are employed, though, you may need to just decide what you want to do.
Take Advantage of Low Interest Rate Mortgage Loans
You can take advantage of the lower interest rates by applying for a 30-year fixed-rate loan. Having bad credit may result in higher interest rates, but you can always improve your credit after obtaining the mortgage loan and refinance in a few years when your credit score improves.
It’s hard to say how the economy might change in the next few years, but if you improve your credit, you can always compare the interest rates offered for refinancing to the interest rate you already have.
Wait and Improve Your Credit
You might also want to wait to apply for a mortgage loan after you have improved your credit score. Interest rates are always changing, so it is very likely that the interest rates might increase before you fix your credit.
On the other hand, some are pointing out that interest rates have the potential to go even lower. The Wall Street Journal goes into more detail, but essentially, current interest rates allow bankers to collect almost twice the profit of previous years. If that profit margin can drop to previous levels, interest rates will drop as well.
Betting on rates to drop is still a bet. If you want to improve your credit anyhow, lower interest rates may very well be the good thing that comes to those who wait.