Definition
A subprime mortgage is a loan offered to borrowers with a low credit score or poor credit history. These loans often have higher interest rates and fees because they are considered to be high-risk.
Understanding Subprime Mortgages
Subprime mortgages typically appear when buyers have lower credit scores. They often carry higher interest rates to offset the increased risk for lenders. In simple terms, a subprime mortgage is like paying a higher price for a ticket because your credit score is lower. Example: A borrower with a lower credit score might receive a 7% rate instead of 4% for a prime mortgage. It's not a guaranteed approval path; borrowers must still meet other lending criteria. A common misconception is that subprime mortgages are inherently bad; they're simply an option for those with specific financial profiles.
