Sub Prime Versus Main Stream Mortgages

Sub Prime Versus Mainstream

For those with an adverse credit rating getting a new mortgage or re-mortgage can prove to be a trip into a minefield. This article discusses what potential borrowers should look out for whilst look for a loan.

One of the problems facing anyone looking for a credit-impaired mortgage is the different criterion that lenders apply to their offerings. Some might allow you to have County Court Judgements (CCJs) but do not permit mortgage arrears, while another mortgage lender might take a completely contrary view. Some take into account the amount of standing debt while others look at the number of missed payments or CCJs. Others might use more detailed criteria, for example, a CCJ over particular time old or under a set amount.

The Sub Prime market is much more complicated that the mainstream market and borrowers need to look carefully at which lenders offer the best rate and terms by taking into account their specific adverse credit.

Borrowers shouldn't just look at the interest rate on offer they should look at the whole deal. Some of the two and three year credit impaired mortgages have a tie-in that requires the borrower to switch to one of their more expensive standard variable rates, or pay an sizeable penalty to get out of the deal when the time is up. So going with a mortgage provider with an initial lower interest may not be the best option in the long run. So the up front rate may not be high the expensive tie-in could last for another two or three years after the credit-impaired mortgage period is up.

Another thing to watch out for is that a growing trend is for Companies to only concentrate on the Sub Prime market and they may not be fully aware of what's on offer in the mainstream market. This could operate to the disadvantage of borrowers who might still qualify for a Prime mortgage but aren't made aware of the option. You could end up tied into expensive rates and paying 1-2 percentage points over what you could have got by going mainstream. Over the period of the mortgage this can add up to a very considerable sum.

Borrowers should also be aware that brokers earn higher commissions on credit-impaired mortgages. Because, by their very nature, sub prime mortgages are at a higher interest rate the ultimate lender is willing to pay the broker more in commission.

Higher commission fees could tempt the less scrupulous brokers to push borrowers into taking on a sub prime mortgage where he or she might be eligible for a Prime one. When you are looking for a credit-impaired mortgage always ask the broker whether they deal in both prime and sub-prime and always ask what the prime alternative is to any mortgage they offer.

Perhaps one of the best pieces of advice is to try and stay with your existing lender. Switching to a Sub Prime lender will almost definitely cost you more. If you have fallen behind with payments with your existing lender, your best bet is to negotiate with them about a repayment plan. It is possible they will let you pay a small amount against the arrears to get you back on track. This is far more preferable to consolidating your debts in a long-term high interest deal with a Sub Prime Lender.

If you need advice about debts then contact either the Citizens Advice Bureau or one of the more specialist advisers like the National Debtline or The Consumer Credit Counselling service.