Sub Prime Mortgages Explained

Sub Prime Mortgages were designed to offer people with an impaired credit history the opportunity to invest in property. If you are interested in finding out exactly what a sub prime mortgage is then this article is for you.

If you have recently applied for a mortgage but had your application rejected due to a bad credit history then you may find that a subprime mortgage is for you. A subprime mortgage loan is a mortgage that is specifically designed for people who are denied prime or standard mortgages by traditional or hard money lenders. A subprime mortgage may be suitable for people who have a poor credit rating or have difficulty proving a regular, reliable income. Understanding a subprime mortgage and the benefits which it may offer your situation may aide you in obtaining a mortgage.

Subprime Mortgage Pros

A sub prime mortgage is designed to specifically benefit people who may be having problems obtaining a prime mortgage, either due to a bad credit rating or possibly due to bankruptcy. One of the main benefits of a sub prime mortgage is that it can be a lot easier to secure a mortgage offer than a hard money mortgage. The disadvantage may be that you may pay a slightly higher interest rate. For this reason you must shop around or speak with a specialist sub prime mortgage broker to ensure you get the best possible interest rate on your subprime mortgage before you sign anything. Don’t forget that you can always remortgage later at a lower interest rate when your credit score has improved.

Subprime Mortgage Cons

One of the main disadvantages of the subprime mortgage is that it may have a pre-payment penalty on the loan which is something that you should look out for if your plan is to refinance and secure lower interest rate at the earliest possible time. Many sub prime mortgage loans have this pre-payment penalty, which may mean that you are heavily penalised should you want to pay off the loan or re-finance during an initial period of time. This fee may even be as high as 6 months worth of interest. Try to make sure that you choose a mortgage that can pay off in the shortest amount of time possible. Again, make sure you talk to a sub prime mortgage broker that will provide you with multiple offers in order to ensure that you are getting the best interest rate available.

Another disadvantage that some people have come across in the last few years is sub prime mortgage lenders who are more than happy to take advantage of the situation which some borrowers find themselves in. Therefore, if you are interested in getting a sub prime mortgage, you need to be aware that some lenders will try to impose unfavourable terms on borrowers with recent bankruptcies and bad credit because they know that the borrower’s loan options are limited.

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