subprime mortgage

A subprime mortgage is a subprime loan used as a mortgage (to buy property, such as a house), that is made available to borrowers with low credit scores, meaning that the risk of default is higher than lenders with better credit ratings who are entitled to receive prime mortgages. Various factors collectively determine the interest rate of a subprime mortgage, such as credit score and the amount of down payment. By charging interest rates higher than those of prime mortgage, lenders benefit while assuming greater risks of default.

Starting in the early and mid-2000s, lenders have been able to place a subprime mortgage into a pool of mortgages consisting of prime mortgages and sell them to investors for profits. As a result, this term subprime mortgage received wide attention following the subprime mortgage crisis between 2007 and 2010, during which subprime mortgages were given to borrowers with low income and minimum assets to secure the mortgage. Yet, even today, subprime mortgages still exist.