Understanding Subprime Second Mortgages

Getting a second mortgage can be beneficial for homeowners in a number of different situations. If your credit is not very good, you might find yourself shopping in the subprime second mortgage market. Here are the basics of subprime second mortgages and how they work.

Subprime Market

If you have good credit, you will be able to shop with a variety of different lenders in the traditional second mortgage market. If you have credit problems, you are going to be grouped into a class of borrowers known as the subprime market. There are many different lenders that specialize in giving mortgages to subprime borrowers. This represents a bigger risk for the lender and generally the borrower is going to have to agree to less than favorable terms.

Terms

Whenever you are shopping in the subprime mortgage market, you are going to need to be prepared to pay high interest. Since you represent a higher risk for the lender, they are going to want to be compensated for this risk in the form of high interest rates. Many times, lenders will also utilize alternative loan structures to provide affordable payments. For example, they might offer you an interest-only loan with a balloon payment at the end. These loans can be very risky, but they do give you the opportunity to get the money that you want.

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