All About Subprime Mortgages

Do you know what you need to be aware of regarding subprime mortgages? As a lender, it is your responsibility to learn about the current mortgage trends as well as the different types of mortgages.

So what exactly is a subprime mortgage?

A subprime mortgage is a mortgage that is made available to people who have lower credit ratings. Due to their low credit ratings, these clients cannot be offered the conventional mortgage because they are considered to have a higher default rate on the loan. In addition, they are charged a higher interest rate compared to the conventional borrowers in order for the lender to compensate them as a result of harboring a higher risk load.

The subprime mortgage industry has been faced by a number of constrains which almost led to its foreclosure and financial meltdown a few years ago. The two major issues include high unemployment rate and drastic increase in defaults. However these were overcome through proper advice to borrowers and guiding them through available options.

Who qualifies for subprime mortgages?

A credit rating of below 600 points will only qualify one for a subprime mortgage. Two major factors that make a candidate qualify for this mortgage are a declaration of bankruptcy and filing a late bill payment. They would need time to raise their credit points to qualify for a conventional mortgage. Other than the credit ratings, a person may be deemed to fall into the class of subprime if they do not bear proof of their assets or income like they would do with a conventional home loan.

Subprime mortgages are usually balloon mortgages or they are ARMs, or even both. They are usually more pronounced during when the demand for housing is high because at that point they attract a lower interest rate in the initial 2-3 years. However, after this period the rates are reviewed upwards after semiannual or annual periods. Subprime mortgages loan also may involve a balloon payment and a prepayment charge.

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