What are Subprime Mortgage Rates?
A subprime mortgage rate is any interest rate offered on a mortgage which is lower than the prime lending rate at the time the loan is initiated. Often, subprime mortgage rates are extremely low at the loan outset but are offered on adjustable rate mortgages and the interest rate can then be adjusted so that the mortgage rate is far above prime after the initial period has expired.
At times, subprime mortgage rates are offered to attract new home buyers in a flat real estate market. By offering really low interest rates, the initial home loan payments are low and the home becomes more attractive to the potential buyer. Many people who could not afford to buy a home at a higher interest rate will be attracted to the subprime rates and make the purchase.
Buying a home is a huge commitment and not something to be entered into lightly. When taking out a subprime mortgage, adjustable mortgage rates can fluctuate if the loan carries adjustable interest and you might find yourself owning a home with payments too high to afford on your income. Then you might have to go into foreclosure and lose the equity you have built up in the home.
If you are a person with an excellent credit score and a great employment future in a secure industry, you may be able to find subprime mortgage rates that can really benefit you in your home purchase. In these situations, mortgage lenders may offer you an exceptionally low interest rate to build a relationship with and ensure that you do all of your financial business with their institution.
If you're considering subprime mortgage rates as an option for purchasing a home, be sure to determine the ceiling of the adjustable interest rate. Generally speaking, there are no subprime mortgages available which do not carry adjustable rates. Otherwise, the bank would make virtually no profit over the life of the home mortgage loan. Sooner or later, that subprime mortgage rate will be adjusted to above the prime lending rate at the time of the adjustment. So, be prepared to either refinance a home mortgage before that occurs or be prepared to pay significantly higher mortgage payments. Also, if you think you might refinance later, be sure there is no prepayment penalty clause in the mortgage contract. That way, when you refinance, there will be no fine for paying the mortgage principle off early with the proceeds of the new mortgage.