• About
  • Mortgage Basics
  • $40K Challenge
  • Aunt Doris
  • Grandfather Says
  • Privacy
  • Archives
  • 100 Words

Len Penzo dot Com

The offbeat personal finance blog for responsible people.

What Is a Subprime Mortgage?

By Len Penzo

Readers: This is article 22 of 25 from my no-nonsense “Mortgage Basics” quick-reference series.

mortgage basicsSubprime mortgages are designed for homebuyers with poor or limited credit histories — typically, anyone with a credit score less than 620. They’re also often the only type of loan available for people with good credit scores who have a high loan-to-income ratio, or can’t provide proof of their income. As a result, subprime mortgages usually come with higher interest rates than other home loans to account for the lender’s higher risk.

Here are several key attributes common to many subprime mortgages:

Adjustable rates. Many subprime home loans are adjustable rate mortgages (ARMs) that offer a low introductory rate that can last for several years before it is finally modified — usually to a higher level.

Interest-only options. Most subprime ARMs feature a period of time where all of the mortgage payments are dedicated to paying the interest only — not the principal.

Prepayment penalties. Those who want to retire their subprime loan early are usually forced to pay extra fees.

Balloon payments. Some subprime loans require the borrower to pay-off their entire loan after the introductory period expires. This can be a real problem for borrowers who are unable to refinance for any reason before the introductory period ends.

Photo Credit: GotCredit

October 13, 2016

Comments

  1. 1

    PJ@KeystoneFinancial says

    This article perfectly sums up what is subprime mortgage is. For thse who can’t afford to buy a house but needs to, here is the best option you can get.

The Question of the Week:

What is the minimum annual income you need to be truly happy?

View Results

Loading ... Loading ...

Recent Posts

  • Black Coffee: Welcome to the Fun House
  • A Georgia Teacher Shows Why It Always Pays to Read the Fine Print
  • Why Extended Warranties Sometimes Do Make Sense
  • 10 Ways to Get the Most from Your Next Business Conference
  • 36 Amazing Uses for Plastic Grocery Bags
  • Black Coffee: A Ponzi for Your Thoughts
  • Grandfather Says: The Continuing Chronicles of Elaine, Part 6
  • What You Must Know Before Filing a Medical Malpractice Lawsuit
  • Million Dollar Neighborhoods Are Still Popping Up Across the US
  • Why Extended Warranties for New Tires Are A Waste of Money

Disclaimer

This site is for informational and entertainment purposes only, and the content herein should not be mistaken for professional financial advice. In fact, making investment decisions based on information published here, or any other website for that matter, is more than unwise; it is folly. This website accepts advertising in the form of monetary and other compensation; as such, topics of discussion are occasionally influenced by these advertisers. Sometimes, an article may also include affiliate links, meaning, at no additional cost to you, this blog earns a commission if you click through and make a purchase (for example, as an Amazon Associate I earn from qualifying purchases). Remember, you and you alone are responsible for the decisions you make in life, so please contact an independent financial professional for advice regarding your unique personal situation.

Sign up for the weekly Len Penzo dot Com newsletter
Len Penzo dot Com Delivered Weekly
Join more than 40,000 readers and fans who enjoy personal finance and macroeconomics with an offbeat twist!
Invalid email address
Thanks for subscribing!

Popular Now:

  1. 1. Scientists Say This Clever Trick Can Help You Break Your Overspending Habit
  2. 2. 4 Online Shopping Mistakes You’re Making and How to Avoid Them
  3. 3. When Is the Right Time to Use Your Wealth Insurance (Gold & Silver)?
  4. 4. Dear Friend: Here Are 41 Reasons Why I’m Not Lending You the Money
  5. 5. Home Repair Scams: Here Are the 9 Biggest
  6. 6. Trying to Save Money on Gas? Here’s Proof That Driving Out of Your Way Rarely Helps
  7. 7. How I Fought My Parking Ticket and Beat City Hall
  8. 8. Are You Frugal or Cheap? Here’s How to Know the Difference
  9. 9. Historical Gold & Silver Benchmarks for Wages and Commodities
  10. 10. 4 Good Reasons Why Some Quarters Are Painted Red

All-Time Most Popular:

  1. 1. 19 Things Your Millionaire Neighbor Won’t Tell You
  2. 2. Dear Friend: Here Are 41 Reasons Why I’m NOT Lending the Money
  3. 3. Why Your Expensive Luxury Car Doesn’t Impress Smart People
  4. 4. If You Can’t Live on $40,000 Annually It’s Your Own Fault
  5. 5. 21 Reasons Why Corner Lots Are for Suckers
  6. 6. 4 Smart Reasons Why College Isn’t for Everyone
  7. 7. 18 Fast Facts About Social Security Numbers
  8. 8. My Ketchup Taste Test: Upset! Guess Which Brand Topped Heinz
  9. 9. Why I Prefer a Spreadsheet to Track Expenses and Manage My Finances
  10. 10. Here’s a Simple Trick for Getting Credit Card Interest Charges Waived

Copyright © 2023 Len Penzo dot Com · All Rights Reserved · Designed by Nuts and Bolts Media

© Len Penzo dot Com 2008–2023