Bad Credit Pricing
Bad Credit Pricing
Bad credit is usually priced according to risk and LVR. The more credit problems a borrower has, the greater chance the borrower will pay a higher rate. Coupled with this, the higher the LVR the higher the applicable rate could be!
If I have Bad credit, does it mean I will pay a higher rate?
If one had bad credit, it does not always mean he will pay more, or have more fee’s applicable. There are a very small number of lenders who will price bad credit very close to a normal loan. Further, there is a select number who will price bad credit the same as normal loan especially if there is a good explanation to it.
Is bad credit pricing restricted to non conforming lenders?
Bad credit pricing in most cases comes from non conforming lenders who specialise in bad credit. however, as mentioned above there is a very small number of more mainstream lenders who will price bad credit loans like a normal loan!
How is bad credit priced?
In most cases, bad credit is priced using a pricing matrix. Using the below matrix, it is obvious that the best grade to have is A, whilst the worst grade is E. Each borrower is given a grade according to their level of bad credit.
For example if a person had a history of bad credit with 3 paid defaults, and 2 months mortgage arrears then using the below credit matrix, this borrower will be a C grade.
This table is an example guide only
| Grade | A | B | C | D | E |
|---|---|---|---|---|---|
Paid defaults |
Nil |
Up to 2 paid more than 12 months ago |
Up to 3 paid within the last 12 months |
Up to 5 paid within the last 12 months |
No limit |
Unpaid defaults |
Nil |
Nil |
Up to 2 |
Up to 3 |
Up to 8 |
Unpaid judgements or writs |
Nil |
Nil |
Up to 2 |
Up to 3 |
Up to 8 |
Current mortgage arrears |
None |
0–12 months 1 payment |
0–12 months 2 payments |
0–12 months 3 payments |
No limit Foreclosure |
Past mortgage arrears |
None |
2 payments |
3 payments |
4 payments |
No limit |
Bankruptcy/ Part 10 |
Never |
Discharged more than 5 years ago |
Discharged more than 3 years ago |
Discharged more than 12 months ago |
Discharged less than 12 months ago |
Once the grade has been determined, this is then cross matched against the LVR required for the borrower. This is done using Interest Rate Matrix as outlined below. In this case, the borrower is looking for an LVR of 55%, which makes the eventual rate applicable as 5.25%.
This table is an example guide only
| Residential Credit Rating | A | B | C | D | E |
|---|---|---|---|---|---|
<50% |
3.75% |
3.85% |
4.2% |
4.5% |
5.05% |
55% |
4.5% |
4.75% |
5.25% |
6% |
6.25% |
65% |
4.75% |
5.25% |
5.75% |
6.5% |
6.75% |
70% |
5.5% |
5.75% |
6.5% |
7% |
7.25% |
75% |
5.75% |
5.95% |
6% |
This table is an example guide only
Different lenders have different grading parameters, hence they grade differently. So it is possible to get a better grade and interest rate with a different lender although some of the lender’s polices could be different. This is particularly true with respect to grading small defaults as a few lenders overlook small Telco defaults up to $1000.
At Mortgage Providers we are have extensive knowledge of pricing bad credit with different lenders. We know which lenders have the most flexible policies to suite our client’s needs. Further, we know how to present a borrower loan application helping to achieve a quick approval for all who apply for this type of loan.