Bad Credit Mortgages Are A Rip-Off

Bad credit mortgages are a rip-off.  Not only are they a rip-off, they were also a prime contributor to one of the deepest recessions of the past 100 years.  They are more commonly referred to as “sub-prime mortgages,” which is more politically-correct than “loan only a sucker would take.”

Why Bad Credit Mortgages Suck

Sub-prime mortgages are by now well-known by readers.  They cater specifically to borrowers with poor credit, a history of defaulting on debts, or a history of poor  personal financial management.  Often, bad credit mortgages charge upwards of 5% more than prevailing interest rates on regular mortgages.  They also usually sport at least one or two other unfavorable characteristics such as an adjustable rate or an interest-only period.

Naive buyers are often tricked into taking out sub-prime loans with phony arguments.  Among the most popular…

• Paying Rent Is Throwing Money Away – This one is repeated so often, you might begin to think it has merit.  It does not.  Renting isn’t throwing money away, it’s buying shelter.  It also limits risk since, as we now know, real estate prices don’t always go up.  The risk of taking a loss is born by the landlord, not the renter.  Think of renting as a cheap insurance policy.  Rent is often much less expensive than owning a comparable property, particularly during the heyday of the real estate bubble.  Renting a nice place to live is a far better financial decision than taking out a bad credit mortgage and paying twice as much in mortgage interest.
• Real Estate Always Goes Up – I was actually told this by my mortgage lender when I was purchasing my condo.  He was trying to convince me an interest-only mortgage was the way to go (no doubt because he got a larger commission).  Hilariously enough, his employer was one of the first to go out of business when the fit hit the shan.
• You Can Always Refinance – No you can’t, not in this environment.  If you took out a 10% interest-only mortgage in 2006 and your credit hasn’t improved dramatically since, chances are you’re still in it.  If you haven’t already lost your home, that is.
• It’s The American Dream – Excuse me, but I think it’s pretty ignorant to assume all or even most Americans share the same dream.  Let’s face it, owning real estate sucks.  You have to constantly fix things, pay property taxes, deal with insurance companies, and keep those pesky kids off your front lawn.  It’s not all that great.
• If You Don’t Buy Now, You’ll Be Priced Out Forever – Ha!  This was actually a very common argument a few years ago.

If you can’t afford a regular mortgage, you can’t afford a home.  Period.  Rent until your credit improves, save up some money, and put down 20%.  Responsibility is the new black.