Subprime mortgage

A subprime mortgage is a mortgage made to a borrower with a poor credit rating, usually of 600 or less. Since these borrowers have a higher risk of loan default, the lender charges a higher interest rate in compensation for taking on the increase risk. However, the interest rate on this type of loan does not have to be excessively high, as long as the borrower makes a large down payment, thereby putting the lender at risk for a smaller loan amount. A person who has a low credit score might have a smaller mortgage payment if he or she waits to build up a more conservative financial position and thereby earn a higher credit score.