As we get older, our priorities change. Where we once wanted to only spend time with friends or on holidays, at a point we start looking for security and long-term investments. However, not all of us are on even-footing when it comes to looking for a house. Circumstances in life means that some of us may have poor credit scores or not be in the necessary financial place to make that step. It’s important to remember that although we don’t always have the same options, there are always some out there, no matter who you are. Some people may feel that they are locked out of buying a house due to poor credit or other similarly seemingly unfair reasons, but this is rarely the case.
What are the benefits?
A subprime mortgage is for those not looked on as being ideal by banks usually. This is usually as a result of poor credit scores or people that may seem to have trouble paying back the loan. These mortgages are done with recognition that the financial situation you were in might not be the one you are in now. Of course, the bigger the risk, the higher the interest rates. This is how the risk is balanced for those offering? Let us look at some figures surrounding these mortgages:
- There are three main types; fixed-rate, interest-only and adjustable-rate.
- Sometimes also known as non-prime or near prime.
- Adjustable terms of anywhere from five to about fifty years.
- Restrictions placed in the recent past prevent the interest rates and terms from these mortgages from getting excessive.
- Rates can often decrease over time if payments are kept up with.
- Current introductory interest rates for subprime mortgages are high to put off higher risk candidates.
Is it Safe?
There have been concerns in the past about whether or not such mortgages are good investments. Thankfully, regulations placed within the past few years have made it far less likely for homeowners to be left in compromising position. Those taking out mortgages will have more understanding of what’s expected and what’s expected is more exclusive than before. On top of that, the rates are nowhere near the levels that they had gotten to in the past. Changes have been made for things to be safer on the side of the borrower and the lender.
What are the drawbacks?
Traditionally, subprime mortgages have had very low introductory rates which increased significantly after a year or two. This leaves those not fully prepared in a difficult spot if they aren’t in a position to make adequate repayments. Although your credit score may not disqualify you from getting a loan, your current salary may. This is used as evidence that you can now make repayments consistently. And once again, due to the higher risk, lenders often want a large deposit up-front in order to balance a threat of non-repayment.
Whether or not a subprime mortgage is for you is really a personal matter. If you’re worried about not being able to repay or if you have lower job security, you may want to find another option.