Sub Prime Mortgages - A Concise Guide
By James C Kerr
There has been a lot of talk in the news lately about sub-prime mortgages and how they have triggered a recession in the US and potentially a global economic slowdown. To many it is hard to know exactly what constitutes a subprime mortgage. There is a very good reasn for this - there is no simple definition of what constitutes a sub prime mortgage. For obvious reasons lenders do not advertise these products a sub prime ! That said there are several characteristics that these types of loans share. This article will try to explain some of these characteristics
100% Loan to Value.
As house prices have risen over the last few years buyers have found it increasingly hard to save up deposits. In response to this lenders have begun to offer more products with very high or even 100% (or more in a few cases) LTVs.
Low teaser or discount rates.
Many loans have a discount or teaser rate as an introductory bonus. These are generally offered in order to attract new customers. After a set period (typically 1-3 years) the discount period expires and the borrower finds that their monthly repayments suddenly increase dramatically. Due to the borrowers poor credit history the rate that the interest moves up to is often much higher than an average mortgage for someone with a good credit rating. Faced with these much higher payments many borrowers try to refinance on to a new mortgage with a new teaser rate. However as the housing market is now performing poorly many are unable to now refinance and mortgage companies lending criteria have tightened. This has had the affect of a large number of defaults and repossessions.
Mis-selling
Many commentators have suggested that much of the mortgage crisis has been caused by the mis-selling of mortgage products. The main accusations are that some mortgage brokers may be guilty of selling these high interest loans to people who they know can t really afford them, especially once their teaser rates expire.
Worse still some have been accused of not even explaining that payments will rise once the teaser period expires, as they do on all Variable Rate mortgages
In order to prevent such a crisis developing in the future there will inevitably be legislation introduced to regulate more closely the practices of mortgage lenders.
For further information about Sub Prime Mortgages please visit the frog finance Refinance Mortgage Lenders - Prime Lenders vs Sub Prime Lenders
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