Risk-Based Mortgage Pricing

AAA

DEFINITION of 'Risk-Based Mortgage Pricing'

Mortgage lenders' offers of different interest rates and loan terms to different borrowers based on a grading of the credit worthiness of each borrower. Lenders grade borrowers, and offer different rates and terms to borrowers, based on several criteria including the borrower's credit score, payment history and the loan to value (LTV) ratio of the mortgage. Risk-based pricing is commonly used by Alt-A and subprime lenders.

INVESTOPEDIA EXPLAINS 'Risk-Based Mortgage Pricing'

Risk-based mortgage pricing has expanded the types of mortgages lenders offer and increased the number of borrowers that can generally qualify for a mortgage. Alt-A and subprime mortgages, the types of mortgages generally subject to risk-based pricing, are frequently sold by the mortgage originator into the secondary mortgage market, where they typically become part of collateralized mortgage obligations (CMO), asset backed securities (ABS) and collateralized debt obligations (CDO). Risk-based pricing plays a large part in the structuring of CMO, ABS and CDO, enhancing their overall credit rating and making them attractive to wide range of investors.

RELATED TERMS
  1. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Collateralized Debt Obligation ...

    An investment-grade security backed by a pool of bonds, loans ...
  4. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  5. Subprime Mortgage

    A type of mortgage that is normally made out to borrowers with ...
  6. Alt-A

    A classification of mortgages where the risk profile falls between ...
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  3. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  4. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  7. Credit & Loans

    Getting A Mortgage After Bankruptcy Or Foreclosure

    Millions of Americans had homes foreclosed and millions more went into bankruptcy. Here are the necessary qualifying steps to buying a home again.
  8. Taxes

    Will Itemized Deductions Get You A Bigger Refund?

    April and taxes are due soon. If you need to file your return, you might have to decide if itemizing your deductions this year will net you a better deal.
  9. Home & Auto

    Save $30,000 For A Home Down Payment In 5 Months

    Before tackling mortgage rates, home maintenance costs and utilities, every home buyer must first gather the funds for a mortgage loan down payment.
  10. Credit & Loans

    Getting A Mortgage When Building Your Own Home

    It's much harder to get a loan when you're building a home, not moving into one. Here's where to look and what to expect.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center