A Note On Purchasing A Home Essay
A subprime mortgage is a type of loan appropriate for individuals with poor credit scores usually below 600, who as a result of their deficient credit ratings wouldn’t be able to qualify for more common conventional mortgages. Subprime borrowers present a higher risk for lenders because of their credit scores and payment history. The subprime mortgage interest change and go far above the prime-lending rate. There are several different kinds of subprime mortgage structures available. An adjustable rate mortgage is very common.
• “ARM: Adjustable rate mortgage which usually charges a fixed interest rate and then converts to a floating rate based on a margin. The most known types of ARMs are 3/27 and 2/28.
• ARMs are somewhat misleading to subprime borrowers in that the borrowers initially pay a lower interest rate. When the mortgages reset to the higher variable rate mortgages payments increase” (S. Carther, 2007).
The Subprime mortgages were one of the major reasons the housing market crashed and the Federal Reserve bailed out the lending banks. There were also are several problems that were encountered because the buyers were not given enough…