Subprime Mortgage

AAA

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.

INVESTOPEDIA EXPLAINS '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 ...

    A variation of the debt-to-income ratio (DTI) that calculates ...
  3. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
  4. Subprime

    A classification of borrowers with a tarnished or limited credit ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
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. Forex Education

    The Credit Crisis And The Carry Trade

    When boom times turned to bust, these trades proved devastating for traders and the broader markets.
  3. Personal Finance

    Understanding Your Mortgage

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

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  5. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  6. Mutual Funds & ETFs

    Who Is To Blame For The Subprime Crisis?

    From lenders to buyers to hedge funds, it appears everyone has blood on their hands.
  7. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  8. Investing

    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 of their deficient credit ratings, would not be able to qualify for ...
  9. Options & Futures

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  10. Credit & Loans

    Are APRs different in different countries?

    Learn about the term APR and how it is used in the United States and other countries. Explore why different lenders charge different APRs.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center