If you suffer from bad credit and need to apply for an adverse credit mortgage product it does not mean that you will automatically need to use the services of a broker who will charge a hefty fee when helping you apply for a home loan. There are other options available such as finding a mortgage product by yourself or employing the services of a broker who charges reasonable fees.
Although the fees attached to adverse credit mortgage products are normally high when compared to standard products, some brokers choose to not take advantage of the situation and do not charge excessive fees to their clients. Some mortgage brokers have been known to charge up to 5% as a brokerage fee simply because the client has a poor credit history. A fee of 5% would equal £5,000 on a mortgage of £100,000.
Mortgage brokers who charge such fees attempt to justify them by suggesting that it is more difficult and time consuming to source and process an adverse credit mortgage application than an application for a standard product. This is not necessarily true, and buyers should be made aware of this. Although there is some extra work involved when a client has bad credit, it is probably not enough to justify such a large increase in fees, which usually ranges from 0% to 1% for clean credit mortgage applications.
Home owners who suffer from poor credit histories should therefore shop around when searching for a broker to help them find an adverse credit mortgage product. Alternatively, the individual could try to source the home loan for themselves. There are many websites online these days which produce helpful best-buy tables that should provide a good indication of which adverse credit mortgage products are available on the market. Although such tables provide some information regarding the adverse credit mortgage products, further research may be necessary.
In addition to brokerage fees, adverse credit mortgage lenders may also levy hefty charges on their customers. Lenders have been known to charge excessive application fees on their adverse credit mortgage range as borrowers sometimes have little choice but to apply for their products. While this may seem unscrupulous, lenders must turn a profit somehow and adverse credit mortgage borrowers represent a higher risk to the lenders than borrowers of standard products.
Mortgages which are designed for people with adverse credit histories often come with tie-in periods and hefty early repayment charges. For example, an adverse credit mortgage product may come with an early repayment charge of 6% if it is redeemed within the first three years. This effectively ties the borrower in to the product for three years as it is likely they will not be able to afford to pay the fee if they want to sell the property or refinance to a different lender or product.
Finally, adverse credit mortgage products also come with premium interest rates. They are risky for the lenders, so they charge a higher rate of interest to offset the risk. Borrowers of adverse credit mortgages should therefore pay close attention to the interest rate being offered as well as the various fees and charges they may be required to pay.
