What are the typical reasons why a person would agree to get a mortgage with a very high interest rate? (12%+)

Question

Mortgage question

Answer 1

They have bad credit and are willing to pay more interest to get the loan.
I bought my first apartment duplex thru a private lender. She was willing to lend me the money and even tho' I had good credit and cash in the bank, I was not earning a great deal of money. But then I don't believe in earned income-it's too much like work. . .so I paid higher interest to get started.

Answer 2

First of all, on a 200k mortgage, the difference in payments from 7% to 12% is about $725 per month, or $8k for a year.

Now, if you have bad credit, but you're buying the house significantly under market and don't want to lose it while waiting on your credit to be repaired, it's possible that this works. For example, if that $200k mortgage is for a $250k house you can pick up cheap for some reason.

If you have educated yourself as to what the problems with your credit score are, and have a reasonable expectation that you can fix them in a year, AND you don't have a prepayment penalty, maybe it's not a bad idea. After all, remember that the extra interest is deductible, so $2k of the $8k is a tax writeoff anyway.

I don't know, I wouldn't touch anything near that high, but some people might have a situation where it works.

Answer 3

Because we have had the American Drean shoved in our faces......To the point that couples are taking out $150.000-250,000 dollar loans...NO one is reading the fine print....they are just seeing the house......Lets say you and your spouse make $65,000 per year and a lender tells you you can have a 250,000 home for 199.00.....You take the anerican dream.....Your at the closing table and you are then being told you have two mortages...one for 7% and the second for 12-15 %......No one thinks about it....they just sign..take the keys and go......Now two years later the % on that second is getting higher....They just spent the last two years getting credit card and cars they can not affford....Why stop at the house WE want it all !!!!! Stupid ? Yea....Then you have the true American dream......People who have had large families,or who have just worked all they're lives, put the kids through college,,,,went in debt to help the kids...now credit is bad, but they want a piece of the American Dream and the only way tp get is 12%...Stupid ?
Not this time....They will never live to pay the house off, they can't refi for years, Let them have those brief years of ownership...they deserve it>>>>>>>

Answer 4

open4one is correct. Real estate and the loans that finance them are nothing more than a cost vs. profit scenario. keep in mind that the average rate of mortgage in 1989 was 16%. That was for people with good credit. If a deal makes sense, it makes sense.

Answer 5

Check out http://www.mortgagefigure.com lots of information about mortgages, refiniancing, consolidation, bad credit mortgages and more.