You’ve almost certainly heard the term “subprime loan” before on the news, in conversation, or on the internet, but are you familiar with what it actually means? You’re about to find out.
Commercial loans can be broken down into two categories; those that are offered with interest rates at prime (the lowest rate a loan can be offered at commercially), and those offered with interest rates above prime. A subprime loan is one that is offered at high interest rates above prime to people who do not qualify for a loan at prime.
Individuals who have been refused a loan by traditional lenders because they are likely to default on a loan are typically targeted for subprime loans. Subprime borrowers may have had setbacks such as unemployment, divorce, medical emergencies, bankruptcy, loan defaults, excessive debt, limited debt experience, history of late or missed payments, or limited or low value collateral.
A subprime loan enables individuals to secure a loan when they may not otherwise be able to get one, but a subprime loan is characterized by higher interest rates (or low interest rates that adjust significantly higher after a period of time), and less favorable terms in order to compensate for the higher risk of lending to them.
When it comes to a mortgage, a subprime loan may seem enticing after being refused a loan by traditional lenders. However, it is very important to understand the terms of the loan. A subprime loan will cost a lot more money over the lifetime of the loan due to the high interest rates or adjustable interest rates.
For more information about mortgages in Houston, TX, contact your Coldwell Banker United, Realtors Sales Associate or go to www.cbunited.com/houston.
Via:: Houston Topics