what is a subprime mortgage 
a subprime mortgage is one that s normally issued to borrowers with low credit ratings a prime conventional mortgage isn t offered because the lender views the borrower as having a greater than average risk of defaulting on the loan lending institutions often charge interest on subprime mortgages at a much higher rate than on prime mortgages to compensate for carrying more risk these are often adjustable rate mortgages arms as well so the interest rate can potentially increase at specified points in time investopedia theresa chiechiunderstanding subprime mortgages subprime doesn t refer to the interest rates often attached to these mortgages but rather the credit score of the individual taking out the mortgage borrowers with fico credit scores below 620 will often be stuck with subprime mortgages and their corresponding higher interest rates 3it can be useful for people with low credit scores to wait for a period of time and build up their credit histories before applying for a mortgage so they might qualify for a prime loan the interest rate associated with a subprime mortgage is dependent on four factors credit score the size of the down payment the number of late payment delinquencies on a borrower s credit report and the types of delinquencies found on the report a mortgage calculator is a good resource to see how different interest rates would affect a monthly payment different lenders will use different rules for what constitutes a subprime loan but fico scores below 640 620 or 600 have typically been classified as subprime cut offs in the past the consumer financial protection bureau classifies credit scores between 619 and 580 as subprime 4subprime mortgages vs prime mortgagesmortgage applicants are typically graded from a to f with a scores going to those with exemplary credit and f scores going to those with no discernible ability to repay a loan at all prime mortgages go to a and b candidates whereas lower rated candidates must typically resign themselves to subprime loans if they re going to get loans at all lenders aren t legally obligated to offer you the best available mortgage terms or even let you know that they re available so consider applying for a prime mortgage first to find out if you do indeed qualify role in the 2008 housing market crashthe 2008 housing market crash was due in large part to widespread defaults on subprime mortgages many borrowers were given what were known as ninja loans an acronym derived from the phrase no income no job and no assets these mortgages were often issued with no down payment required and proof of income was not necessary either a buyer might state earnings of 150 000 a year but did not have to provide documentation to substantiate the claim these borrowers then found themselves underwater in a declining housing market with their home values lower than the mortgage they owed many of these ninja borrowers defaulted because the interest rates associated with the loans were teaser rates variable rates that started low and ballooned over time making it very hard to pay down the principal of the mortgage even after the financial crash subprime mortgages didn t go away wells fargo began offering mortgages to individuals with credit ratings in the low 600s again in 2014 the nonprofit community advocacy and homeownership organization neighborhood assistance corporation of america continued its achieve the dream tour in 2018 hosting events nationwide to help people apply for non prime loans which are effectively the same as subprime mortgages 56covid 19 mortgage reliefthe coronavirus aid relief and economic security cares act signed into law on march 27 2020 provided some temporary relief to those who found themselves unable to make their mortgage payments due to the initial financial fallout from the coronavirus pandemic 7if backed by the federal government or an agency like freddie mac or fannie mae mortgage lenders or loan servicers were not allowed to foreclose on homeowners until july 31 2021 additionally those who experienced financial hardship due to the pandemic were able to request and obtain a loan forbearance for up to 180 days without penalty 7the american rescue plan arp act of 2021 signed by president biden also provided additional support the nearly 2 trillion coronavirus rescue package contained additional funding which provided relief to those behind on mortgages rent and utility bills the legislation issued homeowners in need of assistance with mortgage payments should consult the national low income housing coalition s website which provides a searchable list of all the programs currently available 