Australians with bad credit ratings can still access a fixed home loan, you just need to know where to look.
Accessing regular credit from banks and other lenders with a bad credit rating can prove challenging, as most lenders are wary of taking the extra risk of lending to someone with a history of defaulting or committing other credit infringements. Fixed rate bad credit home loans are designed to help people with a bad credit rating access finance to purchase, renovate or build their own home. If you're not sure if a fixed rate bad credit loan would suit you, or would like some expert assistance to find the right loan for you, fill out the form below to speak to a qualified mortgage broker.
|State Custodians||State Custodians have a range of home lending options for borrowers of all types including various options for those that struggle with approval from standard lenders due to some marks on their credit history.||Purchasing, Debt Consolidation, Refinancing||Enquire|
|Pepper specialises in providing fair home loans to those who are credit impaired - from small defaults all the way up to discharged bankruptcies. They also cater to self-employed borrowers.||Refinancing||Enquire|
|Freedom Loans||Freedom Loans have over a decade in experience in helping Australians with bad credit to obtain the best possible home loan they qualify for. They can help you even if you’ve been declined elsewhere and assist borrowers who are full time, part time, casual or self employed.||Purchasing, Building, Refinancing||Enquire|
What is a fixed rate bad credit home loan?
Fixed rate bad credit home loans are home loans that have a fixed interest rate for a certain period of time, and are designed for those with a bad credit rating. Often these home loans come with a higher rate to make up for the credit risk exposure. Since people with a damaged financial reputation are considered a higher credit risk by banks and other mainstream lenders, they are forced to seek alternative financing. This is where specialist mortgage lenders come in.
Non-conforming lenders have a more flexible lending criteria, meaning that they can offer mortgages to people who have a history of defaulting or missing loan payments, or people with bankruptcies or other red flags that show they are a credit risk.
How do these mortgages work?
Due to the risk involved in giving such credit to people with a bad rating, specialist home loan lenders tend to raise interest rates and annual fees on bad credit mortgages as a sort of insurance policy against defaults. They might also limit the amount a borrower can borrow, or the maximum loan-to-value ratio a borrower can apply for.
Specialist lenders offering alternative refinancing options for people with a bad credit also need proof that you have a regular income to manage your mortgage and require you to declare your outstanding debts. You will also be required to pay for stamp duty and other loan processing fees and raise 20% or more of the mortgage amount as a deposit to look more appealing to lenders.
How to compare fixed rate bad credit home loans
- Loan features. Fixed rate bad credit home loans are in many ways similar to regular mortgages, so you should still look at the features you are being offered. The fact that you are being given home finance with a bad credit rating should not mean that you sacrifice certain features such as a favorable loan term, affordable repayments and a repayment frequency that suits your finances. You might also want to check whether you will have access to a redraw facility or an offset account on your bad credit mortgage, as these could help you better manage your loan down the line.
- Loan fees. Fixed rate bad credit home loans usually have higher fees than regular loans, and the cost of such fees could end up raising the total amount you pay on your home loan significantly. It’s important to shop around and compare the fees on different bad credit home loans so that you choose one with competitive fees that will not burden you in the long run.
- Interest rates. The rate on fixed rate bad credit home loans will be locked for a period of time, making it crucial to choose a loan with a competitive rate that will save you money. Interest payments on such mortgages can easily surpass the principal amount repaid, so you might want to go for a low rate home loan even if it offers less features.
- Lender’s understanding. Due to the nature of your situation, you would want a lender who understands where you’re coming from and is determined to give you a fair go. You’ll need to make sure that you lender understands that you’ve come from a background of financial hardship.
Pros and cons
- Flexible lending criteria. Unlike regular mortgages, fixed rate bad credit home loans enable you to access a mortgage even with adverse listings on your credit file. Non-conforming lenders give credit to people who have even defaulted on loan repayments before.
- Fixed rate. As their name suggests, fixed rate bad credit home loans have a fixed interest rate, ensuring that interest repayments do not fluctuate. This makes it easier for the lender to plan their repayments in advance and better manage their mortgage.
- Protection against raising rates. The RBA revises mortgage lending rates monthly, meaning that rates on a mortgage could rise at any moment. With fixed rate mortgages, you are protected from such fluctuations due to their locked interest rate.
- Higher rates and fees. Mortgage lenders offering bad credit mortgages usually charge higher interest rates and mortgage fees due to the added risk they take on.
Things to avoid with fixed bad credit mortgages
Although a fixed rate bad credit home loan can be an option if you have a bad credit rating, there are many pitfalls you could get into with such a loan. If you try to exit a fixed rate mortgage before the fixed term ends, you may have to pay high exit fees, so be sure that you are comfortable with the features and rates offered before signing the paperwork. You should also not rush into signing up for a bad credit home loan without checking what you will have to sacrifice in terms of loan features, fees and interest rates.
Sometimes, it may be more affordable to attempt to repair your credit file or wait until adverse listings are removed, as you would then access a regular mortgage with a lower interest rate and fees. Another possible pitfall is the likelihood of damaging your already weak credit rating even further. If you default on your bad credit mortgage or even make too many loan applications, your credit rating could get even worse, denying you access to regular credit facilities for many years.
Frequently asked questions
I have bad credit. Can anyone help me find a home loan?
Speaking to a mortgage broker may help you find a home loan for your situation.
Who can benefit from a bad credit home loan?
Basically, anyone who has been denied credit by big banks and mainstream mortgage lenders can get opt for one of these mortgages. People with seasonal jobs, self-employed individuals and people with adverse listings on their credit reports can easily access financing from non-conforming mortgage lenders.
Who are non-conforming lenders?
These are lenders who do not follow the conventional lending criteria used by most big banks, enabling them to give home loans to people with even the worst credit histories. Such lenders in Australia include Pepper Home Loans and Fox Symes.
Can I refinance a bad credit home loan?
Yes. Although you may not be able to refinance to a regular home loan, you can move to a specialist home mortgage with better terms, even though there may be high exit fees to contend with.