Getting a super low rate on a sub prime home loan is very difficult. In many instances, sub prime borrowers have circumstances that place them in the "risky borrower" category. Yet, there are ways for a sub prime buyer to effectively negotiate a lower rate on a loan. If looking to attain a reasonable interest rate on your sub prime mortgage, consider three ways to negotiate a better deal.

1. Pay Points and Reduce the Rate: Points are an upfront cash payment paid to the mortgage lender at closing. If you have a cash reserve and intend to live in the home for several years, paying points is a great way to reduce the mortgage interest rate and lower your monthly payments. A lower rate is perfect for sub prime borrowers with modest incomes, and those who can't afford a costly mortgage payment.

2. Take a Pre-Payment Penalty: Some mortgage lenders give borrowers the option of a pre-payment penalty. Initially, the pre-pay may seem like an unfavorable loan term. In the event that the homeowner sells the property within the first two years, they will have to pay a huge fee or penalty. On the other hand, if looking to reduce your mortgage rate and save money on the loan, taking a pre-payment penalty is sensible. Borrowers who plan to move within the next couples of years should not accept a pre-pay. However, if you don’t foresee a move in the near future, the pre-pay is one of the best ways to save money on the mortgage.

3. Choose an ARM: Many mortgage lenders discourage borrowers from choosing adjustable rate mortgages. The rates on these types of loans fluctuate regularly, and the mortgage payments are free to bounce up and down. In contrast, an adjustable rate mortgage is ideal for bad credit borrowers who can’t afford a high interest mortgage. The best option is to choose an ARM with a two or three year initial fixed rate period, and then refinance the mortgage before the annual rate adjustments start.