by Catherine Rein
(last updated April 3, 2009)
Every time I turn on the TV these days I hear about subprime mortgages. But what are subprime mortgages? Knowing a little about subprime mortgages can help you save time and money when shopping for a mortgage. A subprime mortgage is given to borrowers with less than perfect credit; typically this is defined as a credit score of less than 620. Credit scores are the measurements banks use to rate a borrower and his or her ability to repay a loan.
Poor credit scores can result in the borrower having to pay higher fees and higher interest rates on mortgages, car loans and other types of loans. You will lower your credit score if you pay bills late or not at all or if you have a foreclosure, bankruptcy or other judgment against you. You can raise your score by paying bills on time and keeping a low balance on credit cards.
Here are the steps for avoiding high fees associated with subprime mortgages:
So what is the difference between subprime mortgages and other 'prime' mortgages? Typically the interest rate will be at least 2 points higher on a subprime mortgage. There will also be continuing costs associated with a subprime mortgage, including mortgage insurance payments, higher late fees and larger fines for delinquent payments.
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