With todays aggressive mortgage lending market home owners with bad credit scores and late mortgage payments can still qualify for a bad credit mortgage refinance. Mortgage lenders who write these types of bad credit mortgage refinance loans are referred to as sub prime lenders and are mainly sold by mortgage brokers. Credit scores for sub prime mortgages are usually between 500 and 620.
Although borrowers with mid 500 credit scores and above should try and qualify for FHA financing before accepting a sub prime loan. There are drawbacks to a bad credit mortgage refinance, Sub prime mortgage loans carry with them a higher interest rate and many times a prepayment penalty. Although a small disadvantage to someone who needs the loan they should be taken into consideration.
Many bad credit mortgage refinances are originated in the form of a 2 year ARM. An ARM has an interest rate that will change in a certain period of time meaning higher payments. That time is 2 years for the 2 year ARM, Sub prime ARMS are available in 2,3 and 5 year periods. The ARM is not the only option for a bad credit refinance, you do have the option of going with a fixed rate mortgage but be ready for a interest rate that is .75% or more higher then the ARM rate. In general the sub prime mortgage loan is considered but many to be just a band aid type loan meant to carry you along until you can raise your credit score up enough to get a conforming loan. If you must take the ARM over the fixed mortgage do yourself a favor and take the 5 year ARM. It will give you much more time to straighten out your credit profile.
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