Title:
Bad Credit Second
Mortgage by the Numbers
Word Count:
569
Summary:
Learn more about
the five numbers that determine the cost of a bad credit second mortgage:
interest rate, years on the job, credit score, closing costs and term length.
Keywords:
bad credit second
mortgage, subprime second mortgage, 2nd mortgage with bad credit
Article Body:
Bad credit second
mortgages make up a sizable part of the mortgage market. According to a recent
survey by the Mortgage Bankers Association, the number of second mortgage
originations increased by 13 percent in the second half of 2005 and closed-end
second mortgages increased by 33 percent. The survey included 114 lenders that
originated $189 billion in second mortgages, many of them to people with bad
credit.
There are at least five numbers that determine the ultimate cost of a bad
credit second mortgage: interest rate, years on the job, credit score, closing
costs and term length.
<b>Interest rate</b>
The interest rate on a second mortgage is slightly higher than on a first
mortgage because it is in a subordinate position. If the borrower defaults and
the home goes into foreclosure, the second mortgage is settled after the first,
so the lender is taking a greater risk.
The interest rate on a bad credit second mortgage will be higher still, so says
Steven Frank, Senior VP at FlexPoint Funding, one of the nation’s largest
subprime mortgage bankers. “A bad credit borrower is someone with a FICO score
below 62. He or she will pay between 1.5% and 2% higher interest for a second
mortgage, but there is no shortage of money or willing lenders in the bad
credit mortgage market.”
<b>Work history</b>
When considering a bad credit second mortgage, lenders look at the borrower’s
ability to repay the mortgage. This is verified by checking his or her current
employment and total income. Mortgage lenders prefer that the borrower has been
employed at the same place for at least two years, or has been in the same line
of work for several years.
<b>Credit score</b>
The lender will also look into how the borrower has met previous financial
obligations. This is where a credit report and credit score come into play. A
credit report lists a person’s credit activity for the last several years. It
shows the highest balance, current balance and payment history on every
account. Negative data such as late or missed payments gets erased after a few
years but a bankruptcy can stay in the report for up to ten years.
Credit scores (also known as FICO scores) range from 900 down to 300. A score
of 680 or higher signifies good credit. A score between 620 and 680 will cause
most mortgage lenders to take a harder look at a borrower. If the number is
below 620, as Mr. Franks points out, the person falls in the bad credit range
and is charged more for a bad credit second mortgage.
<b>Closing costs</b>
The closing costs associated with a bad credit second mortgage will be cheaper
than refinancing a first mortgage. In addition to minor processing fees, some
lenders may charge an up-front fee in the form of a percentage of the total
loan amount (known as "points”). A borrower may also be able to pay points
to lower the interest rate on the loan.
<b>Term length</b>
The longer the bad credit second mortgage, the lower the monthly payments but
the more interest paid overall. The shorter the second mortgage, the higher the
monthly payments but the total costs will be lower. It is in the borrower’s
best interest to choose the shortest possible term he or she can reasonably
afford.
You can get more information a free quote on a second mortgage at
www.badcreditsecondmortgagenow.com.