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. 4 Steps To Attaining A Mortgage
    Credit & Loans

    4 Steps To Attaining A Mortgage

  2. Understanding Your Mortgage
    Personal Finance

    Understanding Your Mortgage

  3. Mortgages: How Much Can You Afford?
    Budgeting

    Mortgages: How Much Can You Afford?

  4. Make A Risk-Based Mortgage Decision
    Options & Futures

    Make A Risk-Based Mortgage Decision

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center