ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A subprime mortgage is a type of debt instrument that is provided to individuals with a low credit score and whose chances of paying back the loan are lower than other individuals. The bank charges a higher rate of interest for taking such an additional risk.

Detailed explanation-2: -Subprime mortgages can come with fixed rates, adjustable rates or interest-only terms. These loans carry higher interest rates and more onerous down payment requirements.

Detailed explanation-3: -A subprime mortgage is a type of loan granted to individuals with poor credit scores who wouldn’t qualify for conventional mortgages. Subprime mortgages are now making a comeback as nonprime mortgages. Fixed-rate mortgages, interest-only mortgages, and adjustable-rate mortgages are the main types of subprime mortgages.

Detailed explanation-4: -To offset that risk, lenders charge higher interest rates. Right now, the average rate for a 30-year fixed rate conventional mortgage is under 3%, but the rate on a subprime mortgage can be as high as 8% to 10%, and require bigger down payments.

Detailed explanation-5: -Subprime mortgages offer borrowers with below-average credit an opportunity to purchase a home when they can’t qualify for a prime mortgage. However, subprime mortgages typically have higher interest rates and payments, as lenders seek to offset the risk of lending to borrowers with less than ideal credit.