While many mortgage lenders do not offer loans to people with bad credit, some lenders actually do lend to borrowers with lower scores.
The simplest definition of a subprime mortgage is a home loan with a much higher interest rate than the conventional loans that are offered to borrowers with better ? or ?prime? ? credit. Unfortunately, many subprime loans not only have higher rates, but they also have other features that can make the loans risky.
As the CFPB explains, subprime loans may be set up as adjustable rate mortgages. ARMs typically offer an initial promotional interest rate that is lower than what you can get with a fixed-rate mortgage, but the interest ? and your payments ? can rise after the introductory term.
Some subprime loans also have negative amortization. This happens when your monthly payments aren?t enough to cover the interest due on your mortgage, making it more difficult to pay down the loan balance. Negative amortization results in your balance growing every month because the unpaid interest is added to the unpaid balance on your loan.
Darryl founded Smith Financial Advisors Inc. in 2006 after over 30 years experience in financial services including Mergers & Acquisitions, Investment Banking and traditional Commercial Banking activities at Bank One. Smith Financial Advisors is a Registered Investment Advisor in the State of Illinois. The firm specializes in Investment management, financial planning, and retirement planning.