Sub Prime Mortgage: Off the Mainstream Loan

2007-03-08 10:33:40

( Financial )



BLEMISHED CREDIT HISTORY

If your credit history reflects a recent case of bankruptcy or debt foreclosure then you are considered high risk by banks and other lending institutions. These mainstream lending companies are generally prime lenders, catering to individuals who fit the profile of the ideal lender, whose credit history reflects consistency in paying debts.

If you are among those with a blemished credit history, do not worry. You can still get that loan you need by approaching sub prime lenders and applying for a sub prime loan.

Sub prime lenders cater to a significant portion of society that would have otherwise been ignored by mainstream lenders. These sub prime lenders recognize that those with less-than-perfect credit history are not necessarily bad payers. In fact, most of these people have the capacity to pay; they just met some unfortunate circumstances which drained them financially. Most of them would have liked to make good on their debts, given half the chance.

THE SUB PRIME MORTGAGE

One very common type of sub prime loan is the sub prime mortgage. Because a mortgage is major loan to take out, a sub prime mortgage has some major differences from its equivalent traditional prime mortgage. A sub prime mortgage has higher interest rates. Because a sub prime mortgage is still generally considered high risk, sub prime lenders try to offset those risks by charging more in terms of interests.

However, there is another sub prime mortgage arrangement. This one has comparable interest rates with prime mortgage, but requires a balloon payment and prepayment penalty. Balloon payment that after a specified time has elapsed, you have to pay the entire sub prime mortgage loan. Otherwise, you have to refinance the loan or sell the property. Prepayment penalty is the fee you have to pay when you want to settle your sub prime mortgage much earlier than the loan period.


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