What are Subprime Mortgages

Everyone dreams of owning their own home sooner or later although proper timing when looking for an affordable home loan is more important than you might imagine. Even though there are different kinds of mortgages available for people with different kinds of credit, it’s vital to research available options prior to settling for monthly mortgage payments. One option for prospective home buyers with less attractive credit is a subprime mortgage.

What are subprime mortgages?

The definition of subprime mortgages is quite simple. Subprime mortgages are defined as mortgage loans offered to borrowers with lower credit scores and income than what is normally expected from individuals applying for conventional mortgages. Those that are not eligible for a mortgage with lower interest rates, and essentially lower payments, may result to subprime mortgages. These mortgage loans are characterized by higher costs which can set borrowers further behind and make their credit even worse.

Because of the high risk factors of individuals with lower credit scores, recipients of a subprime mortgage will more than likely pay higher interest. Higher payments are harder to make meaning one is likely to go into foreclosure, lose his/her home, and any credit that they may have had. Although millions of people have already been approved for loans under subprime mortgages, there are a few disadvantages of subprime mortgages to be considered.

One disadvantage of subprime mortgages is the pre-payment penalty meaning that you will be penalized should you decide to re-finance or pay off the loan which is six months worth of interest. Another disadvantage of a subprime mortgage is that most lending companies are taking advantage of borrowers with bad credit because they are aware that the borrower’s loan options are limited. So, if interested in obtaining a subprime mortgage, search for subprime mortgage lending company that will provide you with multiple alternatives to ensure you get fair interest rate.

There are other options for finding your dream home that could be better than being locked into the sometimes unreasonable costs of high interest rates and higher mortgage payments. Before you settle for subprime mortgages and the rates they offer, look into other options. Postponing your purchase for a year while you repair your credit can bring you closer to qualifying for a lower interest rate. Some people can afford higher payments until their credit has improved, and for those that can, a subprime mortgage might still be the answer to realizing your dream.

The rates at which your loan is offered will affect you no matter your type of loan, and the higher rates of subprime mortgages can sometimes make matters worse. Because of this, it is advised to first consult with professionals before applying for subprime mortgages. Ensure that you clearly understand the rates and are in a position to pay them.


Investopedia – Subprime Mortgage

Home Buying Institute – Subprime Mortgage Loans – A Borrower’s Guide to Subprime Lenders and Loans