Sub-prime Mortgage Lending and Home Loan Borrowing
A sub-prime mortgage is a mortgage that was created for the sub-prime borrower or in other terms borrowers who did not qualify for a prime mortgage which generally have more favorable terms.
A sub-prime mortgage will traditionally have higher interest rates, higher closing costs and or servicing fees. The higher cost of debt is justified by the higher risk taken by the lender.
The sub-prime mortgage has caused the recent recession and housing crash.
Though the Subprime lending has contributed in large part to the turmoils of our economy not all subprime mortgage loans are a bad thing.
The practice of sub-prime lending has enabled consumers to obtain home loans that they were able to use to buy a home and thus live the American Dream.
Sub-prime borrowers are unable to get approved for the more borrower friendly prime mortgage loans. This is for the simple fact that only prime borrowers qualify for prime home loans.
Since a sub-prime borrower does not qualify for a prime mortgage, one can easily deduce that if such a borrower is unable to borrower via a sub-prime loan then that borrower is not going to be able to buy a home. Following this logic there is a clear space and market for sub-prime mortgage loans and thus sub-prime lending.
When and How Subprime Went Wrong - Explained