What Is The Definition Of A Subprime Mortgage ?
There is no definition of a subprime mortgage as different subprime mortgage lenders view it differently based on the criteria they grant the loan. |
Sponsored Links :
|
However, one can say that a subprime mortgage is a type of mortgage given to a person who has a bad credit history and low credit scores.
Usually borrowers with bad credit history will not be able to get a mortgage to buy a house. So, these borrowers go to subprime mortgage lenders, who check their credit history and credit scores, and then approve their mortgage as high interest rates. The interest rate is high as the lender tries to protect himself in case of default. The borrowers of subprime mortgage are considered to a high risk of defaulting their mortgages.
Usually subprime mortgages are extended to people with a credit score of 640 to 620. The interest rate for the mortgage is decided by the lender based on the individual's credit score, the amount of down payment made, the number of prior defaults, the type of defaults and the amount of the mortgage.
The subprime mortgages allowed people with low credit scores to avail mortgages which otherwise they would not have qualified for. Also, through subprime mortgages, these borrowers could buy homes. However, the biggest risk of the subprime mortgage is that since these borrowers already have prior defaults and delinquencies, the risk of future default and delinquency on the mortgage is very high. In fact, the foreclosures that ultimately led to crisis engulfing the banking and financial sector in the US was because of large number of subprime mortgage borrowers defaulting on their payments. This, in turn, affected the economy and ultimately affected the economy of other nations adversely.
More Articles :
|
