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A subprime mortgage rate is an interest rate given to a borrower with a low credit score, usually below 620. The interest rate charged is higher than that of a borrower with a high credit score.
Significance
The size of the subprime mortgage market is substantial, and often debated. The best estimates are between 13.5 and 20 percent of all mortgages.
Function
The subprime mortgage market gives borrower with less than stellar credit the opportunity to buy or refinance a home while rebuilding their credit.
Types
Subprime or Alt-A mortgages can have fixed or variable rates, with terms ranging from 10 to 40 years.
Considerations
Borrowers with credit scores close to but below 620 should consider credit counseling to help them raise their scores high enough to qualify for the lower, prime mortgage rates.
Misconceptions
Since there is no exact definition of a subprime mortgage, some lenders consider borrowers with higher credit scores but with down payments of 5 percent or lower as subprime mortgage as well.
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