These equity based mortgages, even though issued at higher interest rates that a bank or institutional lender are still considerably cheaper than alternatives such as payday loans, credit cards, asset based lending against non real estate items, etc.
Even for people that don’t have bad credit, you are more likely than not to carry an interest rate card that will charge you an interest rate in the mid to high teens if you don’t pay off your balance every single month.
When someone truly has bad credit, the options for securing a bad credit loan are truly limiting, and options that are available may come with unmanageable interest rates and high monthly or weekly cash flow requirements which make them very short term solutions due to their cost and strain on the cash flow.
By contrast, a bad debt loan through a private mortgage lender is going to be most interested in the market value and marketability of a property you have equity in that can be used to secure a private mortgage.
The key to being able to secure a private money loan is to have equity available in a property you own or in a property that someone else is prepared to put up for security.
As long as the loan to value ratio after a new mortgage is secured is no greater than 60%, there is a pretty good chance that there is a private mortgage solution available to you. That being said, private lenders can potentially go as high as 90% on second mortgages, but this is not typical, and the nature of your credit profile will likely impact the loan to value the lender will be comfortable with.
There are also can be a lot of misconceptions as to the cost of private money. Also referred to as hard money, private lending can start in the high single digits for interest rates and range up into the mid teens. Pricing is related to risk, so the stronger the property you hold and the more equity you have in it, the better the rate you are likely going to be able to secure.
From a cash flow basis, most private lenders will only require interest payments each monthly on a bad credit mortgage. So compared to a conventional mortgage from a bank where principal and interest payments are both required on a monthly basis, the actual impact on cash flow of a private mortgage is negligible compared to cheaper forms of financing.
In order to locate and secure a bad debt loan that meets your requirements within the time you have to work with, you best approach would be to work with a private mortgage broker that has direct access to private lenders that financing similar deals in your area.