What is Sub-Prime Mortgage?
Sub-prime lending is pretty much as it sounds: a loan provided by a financial institution or other lender to a borrower that for various reasons doesn't qualify for a "prime" mortgage.
With home prices perpetually climbing higher and with banks continuing to tighten lending standards, more people are being pushed into the sub-prime space when applying for a mortgage, which requires higher interest rates and often more stringent repayment terms.
Applicants: young people fresh into the workforce,People whose income doesn't allow them buy home.
Why taking on a sub-prime mortgage is not optimal...
In addition to having higher interest rates, sub-prime loans often come with higher fees. What's more,sub-prime mortgages typically include lender fees that are required upon the closing of the mortgage and extremely high penalties if the mortgage is broken,making it difficult and expensive to refinance before the end of the term.
• Read the fine print. Know what you are getting into.
• Borrow what you can afford. The typical rule of thumb is mortgage payment should be no more than 50 per cent of your after-tax income.
• Have a down payment/pay it down.
• Ensure the duration of the loan is short enough and manageable enough to strengthen credit.