Subprime Mortgages

A subprime mortgage is a type of mortgage that is made to borrowers who have below average credit.  The borrower will typically have a credit score lower than 600 as a result of derogatory marks on their credit report such as late payments, collection accounts, and possibly even bankruptcy or forclosure.

Since lending to individuals with poor credit has a higher than average risk for default, a subprime mortgage loan will have a higher interest rate and less than desirable terms.  It is very common for people with subprime loans to have short fixed rate periods (2 year adjustable rate loans where your rate WILL increase after 2 years), pre-payment penalties if the loan is paid off early, and balloon payments.

If you think you might need to obtain a subprime mortgage, please consider an FHA loan that allows for lower credit scores.  Your mortgage broker can give you more details on FHA v.s. subprime mortgages. Recent research has shown that a large percentage of subprime mortgage holders could have qualified for an FHA loan to begin with.

If you currently have a subprime mortgage and would like to know what options you have with refinancing, please complete the contact form.