What is a subprime mortgage, and is it apt or unpromising?
Answers:
The term "subprime" describes a type of mortgage for borrowers with doomed to failure credit. It's neither good nor bad, a short time ago a category.
Subprime mortgages, like any other type of credit for people next to bad credit, tend to have superior interest rates than loans for people with obedient credit. Subprime mortgages typically have a two- or three-year pre-payment penalty. Source(s): http://primelendingonline.com
"Subprime" mortgages are those loans given to individuals with weak credit or an inability to properly document their income, or both, habitually with low downpayments, or used as consolidation loans when refinancing.
They are good, to a amount, in that they do serve a useful purpose surrounded by allowing more people access to home financing.
Bad, however, is the fact that most of them are done next to short-term teaser rates. Most common is an adjustable-rate loan that has a low fixed rate for 2-3 years. The rates can spring substantially after that, increasing your monthly payments by 50% or more overnight in some cases.
Also bad, is that most subprime loans are sold next to prepayment penalties. So, if you are even eligible to refinance into a prime loan, it can potentially cost you thousands of extra dollars when you pay sour the loan early, usually within matching 2-3 year period.
They can be useful sometimes to abet someone consolidate debt and reduce payments, especially if they've had trouble within the recent past that can be fixed by paying off collections or other debts and getting your credit cleaned up. As long as you can refinance summarily before the rate adjustment and payment walk wipe you out, it's not bad, and can actually help out some people get their financial lives vertebrae on track.
Overall, most people should do their best to avoid them if at all possible. There's a use that almost 1 in 5 subprime loans written in the end 2-3 years are behind on their payments. High risk, high rates, and given to ethnic group who can barely afford them. Source(s): 10 years in mortgage bank
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