The mortgage rates for bad credit type applications are going to be very similar between the sub prime institutional lenders and the private mortgage lenders.
In virtually all financing scenarios, interest rate is related to risk. While there can be instances where this doesn’t hold true, those cases are going to be few and far between…meaning that the next time someone with bad credit says they got some sort of prime plus mortgage rate, its likely an exaggeration of the facts or a made up story.
So what are the rates for a bad credit mortgage?
This will vary by the mortgage position that is offered by security as well as the quality of the real estate and the market where the property resides.
But for the most part for those that have bad credit, the rate on a first mortgage is going to be between 9% and 12% and the mortgage interest rate on a second mortgage is going to be between 11% and 15%.
This takes into account the interest rate written into the mortgage.
For most bad credit mortgages, you’re also going to be paying a lender fee from half of one percent to two percent and mortgage broker fees on top of that if a mortgage broker is being utilized.
Adding in all the potential costs, the net effective rate for a bad credit first mortgage will range from 10% to 16%, and the effective interest rate on a 2nd mortgage is going to then range from 12% to 19%.
While the available mortgage rates can be quite high in certain situations, the monthly payments, at least from private lenders, are primarily interest only.
So even though you end up moving into a higher interest rate bracket, the net cash flow payment every month may be very close to what you had paid previously for a similar amount of financing to a bank or institutional lender at a lower rate due to the fact that principal is not being repaid.
Once again, there can be anomalies in the market where better rates can be secured, but there typically is something in the deal that attracts a better rate.
For instance, you have an outstanding property within the city of Toronto, and only want a loan to value of 50%, the equity in the property and the quality of the security can still provide a bad credit mortgage in 6% to 7% range.
At the same time, the worse your credit is, the harder its going to be to find interested lenders, and those that are interested are going to charge rates at the higher end of the ranges listed above.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel