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Bad Credit Home Loan Rate - Batten Down The Hatches

Everyone considering a bad credit home loan these days will have to make a very important decision - fixed or adjustable. For some the decision will be easy because they'll only be approved for the desired amount given an adjustable rate, but others will indeed have a decision to make.

Pay more now or pay a lot more later?

A fixed bad credit home loan ratemight seem like a stupid thing to agree to:

• You will qualify for a lower loan amount than if you took that ARM
• Your rate will be significantly higher than virtually everyone else's - the average bad credit rate for a fixed, 30-year mortgage is about 8.0% APR.
• The initial demands and pressures of your home loan will make your introduction zero fun at all - no time to enjoy your new surroundings, you just have to hunker down and dedicate your financial life to your home.

Yet the one benefit to a fixed rate loan might outweigh all the disadvantages - stability. No matter what, you're interest rate will remain the same throughout your mortgage term, barring any refinances or prepayments you put toward the mortgage principal. And this stability is proving more and more important on a daily basis.

The danger of flexible bad credit home loan rates

Applying for bad credit home loans usually means ARMs and disadvantageous terms - high rate adjustment caps, prepayment penalties, that sort of mortgage piracy. But of greater concern is the market situation - interest rates are rising while home appreciation values are falling form the sky. Remember that 8.0% fixed APR we almost choked on? Consider this:

• Imagine you're approved for a 5/1 ARM at 6.5% APR, and since you have bad credit you don;t just get a higher rate but you're slapped with a 1% annual rate cap up to 12% overall and a harsh prepayment penalty should you dare to look for a refinance.
• Bah! Homes are appreciating so much these days you'll have enough equity to refinance no problem - think again. Home values are actually decreasing in many markets across the country.
• The initial five years are up, the prime rate during that time rose an average of 1% a year, and suddenly your rate adjusts by the maximum amount to 7.5% APR. And the next year to 8.5% APR, and then to 9.5, 10.5, 11.5% - all the way up to 18.5% based on the rate cap provided in your loan agreement.

Those fixed bad credit home loan rates are starting to look pretty sweet about now. Consider the future - because now more than ever the future holds dangerous things for current home buyers.

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