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Information on characteristics of subprime mortgages

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Mark Cappel
UpdatedJan 5, 2008
All this talk of sub primes has me nervous. I might have one and not know about it?

All this talk of sub primes has me nervous I might have one and don't know it! My mortgage papers have the same (or relatively) the same payment listed for 30 yrs @ 5.99%. We have had our house for about 3 yrs? Does that sound right for a traditional mortgage or should I be looking for something else in the papers? Please set my mind at ease...Thanks so much.

Subprime mortgages were created to allow risky borrowers a chance to own a home. Risky borrowers are those whose credit scores are low and whose credit histories are unfavorable. For these people, who were previously unable to own a home, subprime mortgages answered a prayer.

If you have one or more of the credit characteristics listed below, your loan may have "subprime" terms.

1. The interest rate will be unconventional. Subprime mortgages are known for their high interest rates, which lenders use to offset the risk involved. The interest rates are often mixed, with the first two to three years at a fixed rate and the subsequent years adjusted to the fully indexed rate.

2. The down payment will be low or not required. Subprime lenders often allow borrowers to mortgage 90 percent or more of the home's value. One hundred percent loans also are frequent with subprime lenders.

3. You've had two or more 30-day delinquencies in the last 12 months, or one or more 60-day delinquencies in the last 24 months.

4. There was a judgment, foreclosure, repossession, or charge-off in the prior 24 months.

5. If you filed for bankruptcy in the last 5 years.

6. If you have a high percentage of debt compared to income that may limit your ability to cover family living expenses after deducting total monthly debt-service requirements from your monthly income.

In your case, the 5.99% interest rate that you have is a good rate. What you will need to do is carefully review the fine print to check to see if the interest rate is fixed for the life of the 30 year term or will be adjusted after a period of time. Most subprime loan contracts also contain a prepayment penalty that usually expires after the fixed rate is over.

If you can rule out all the characteristics stated above and if you find that the interest rate on your loan is fixed for the 30 year term, then there is no cause for worry. You can read more about sub-prime mortgages at

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