Having bad credit is such a misleading label. Technically it means that, based on credit rating scores, a person with bad credit represents a potentially higher risk as a borrower than one with good credit.

And, in the loan world, that essentially means the lender can consider implementing additional steps to offset a bad credit mortgage. Note, these loans still happen regardless.

In most cases they tend to have a higher interest rate charge and a larger down payment requirement. The interest rate offsets the loan risk as the borrower recovers payment faster, and the down payment involves more of the borrower in the loan, making it unlikely the person would walk away from their own investment.

“Better” Depends on Whom You Ask

When it comes to the difference for the 15-year or 30-year mortgage choice, the length of repayment doesn’t really make that much of a difference from a lender perspective. The real issue is whether the borrower has the proven income level and assets to handle the loan adequately.

These are first determined using ratio formulas based on the information the borrower provides such as paycheck proof, checking and savings account balances, and a down payment ready to pay up front.

From the borrower perspective, especially one with bad credit, the choice of a 15-year mortgage is far better. Remember, you are likely going to pay a higher rate of interest due to your credit history.

That means for every mortgage payment, your interest charge will be a higher amount of money paid that does nothing for paying off your loan but goes to the lender as profit and risk offset.

In addition, if your down payment is under 20 percent of the home value, you will be required to pay for credit insurance, and added protection for the lender. Again, this is a cost that does nothing to pay off your loan, but it adds to your monthly payment.

Which Bad Credit Mortgage is Better for You?

The 15-year mortgage reduces how long you have to pay your higher interest until the loan is paid off or your refinance, which is much better than 30 years. The real question is whether you can afford the 15-year mortgage.

A 30-year mortgage is far more manageable because the loan payment per month is less; you are spreading the loan over a longer repayment period.

You’re paying more when all the interest and charges are added up, but it’s still hundreds of dollars less per month on a cash basis, which really matters if you compare it to how much your monthly paycheck provides.

Not everyone can afford on a cash basis a 15-year mortgage. The only other way to reduce the 15-year demand is to pay a higher down payment, which reduces the size of the loan and can eliminate the credit insurance.

Don’t forget, even if you can afford the 15-year loan payment, you will almost always be hit with a loan escrow account as well. This is charged monthly with your mortgage payment to save up the funds for your property taxes and any home insurance costs required in your state.

That can put a person over the top in what’s affordable monthly versus 30-year bad credit mortgages. The real choices come out when you do the math and determine what you can really afford with everything added up.