Subprime Mortgage
What Is a Subprime Mortgage?
A subprime mortgage is a home loan offered to borrowers with lower credit scores or higher perceived credit risk.
Because risk is higher, interest rates and fees are typically higher than prime mortgages.
Why It Matters in a Mortgage
Subprime loans may:
- Provide access to homeownership
- Carry higher borrowing costs
- Include stricter terms
These loans became widely known during the 2008 housing crisis, which was closely tied to mortgage-backed securities markets influenced by institutions such as Federal Reserve.
Subprime lending practices have since become more regulated.
How It Works
- Borrower with lower credit profile qualifies.
- Lender charges higher interest rate.
- Underwriting standards assess risk differently.
Subprime vs. Prime Mortgage
Subprime → Higher risk, higher rates
Prime → Strong credit, lower rates
Risk pricing drives cost difference.
FAQs About Subprime Mortgages
Are subprime loans illegal?
No, but they are regulated.
Do subprime borrowers always default?
No, but risk profile is higher.
Can credit improvement lead to refinancing?
Often yes, at better terms.
Related Terms
