Bad Credit Second Mortgage by the Numbers
Below is a MRR and PLR article in category Finance -> subcategory Mortgage.
Understanding Bad Credit Second Mortgages
Overview
Explore the five key factors that impact the cost of a second mortgage for individuals with bad credit: interest rates, work history, credit score, closing costs, and term length.
Key Factors
Interest Rate
Second mortgages typically have higher interest rates than first mortgages due to their subordinate status in case of foreclosure. For those with bad credit, this rate can be even higher, ranging between 1.5% and 2% above average. Despite this, the market remains accommodating, with many lenders willing to assist.
Work History
Lenders assess a borrower's ability to repay a second mortgage by examining work history and income. Stability is key, as lenders prefer borrowers who have been employed at the same job for at least two years or have been in the same field for several years.
Credit Score
Credit scores, also known as FICO scores, range from 300 to 900. A score of 680 or above indicates good credit, while a score below 620 suggests bad credit, often leading to higher interest rates. Lenders examine credit reports to evaluate a borrower’s payment history and financial responsibilities.
Closing Costs
The closing costs for a second mortgage are generally lower than those for refinancing a first mortgage. Besides minor fees, some lenders may charge upfront fees known as "points." Borrowers can pay extra points to potentially lower their interest rate.
Term Length
The term length of a second mortgage affects both monthly payments and total interest cost. Longer terms result in lower monthly payments but higher overall interest. Borrowers should aim for the shortest term they can comfortably manage to minimize total costs.
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