Subprime Mortgage

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DEFINITION of 'Subprime Mortgage'

A type of mortgage that is normally made out to borrowers with lower credit ratings. As a result of the borrower's lowered credit rating, a conventional mortgage is not offered because the lender views the borrower as having a larger-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate themselves for carrying more risk.

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BREAKING DOWN 'Subprime Mortgage'

Borrowers with credit ratings below 600 often will be stuck with subprime mortgages and the higher interest rates that go with those mortgages. Making late bill payments or declaring personal bankruptcy could very well land borrowers in a situation where they can only qualify for a subprime mortgage. Therefore, it is often useful for people with low credit scores to wait for a period of time and build up their scores before applying for mortgages to ensure they are eligible for a conventional mortgage.

RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Front-End Debt-to-Income Ratio ...

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  3. Subprime

    A classification of borrowers with a tarnished or limited credit ...
  4. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
  5. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
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RELATED FAQS
  1. How much risk is associated with subprime mortgages?

    A large amount of risk is associated with subprime mortgages. Since the mortgages are specifically for people who do not ... Read Full Answer >>
  2. Are subprime mortgages still available for homeowners?

    Subprime mortgages are usually the culprit that gets blamed for the housing bubble burst in the 2000s. After the housing ... Read Full Answer >>
  3. What role did junk bonds play in the financial crisis of 2007-08?

    Junk bonds were the at heart of the financial crisis of 2007-2008. Toxic assets related to the subprime housing market pushed ... Read Full Answer >>
  4. How does the risk of investing in the banking sector compare to the broader market?

    Investing in the banking sector carries only a little over half the risk of investing in the broader market. The sector is ... Read Full Answer >>
  5. What is a subprime mortgage?

    A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result ... Read Full Answer >>
  6. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>

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