Subprime Mortgage

Subprime Mortgage

· Subprime mortgage market lends money to people who don’t meet the credit or documentation standards for ordinary mortgages or who has poor credit history.
· Subprime borrowers often have credit problems or low incomes, there’s a greater chance that they won’t pay back their debts, making subprime mortgages inherently risky for lenders. To compensate for this added risk, banks and other lenders charge higher interest rates on subprime mortgages.
· Subprime mortgages are considered less borrower-friendly and put banks at higher risk of non-payment.
· The subprime rate offered by the lender can vary from lending institution to institution.
· Subprime mortgages are more frequently adjustable rate (ARM) than fixed, the Federal Reserve web site states that over 2/3rds of such loans are adjustable. This increases the possibility that borrowers will be incapable of paying the differences if interest rates undergo an unexpected increase.