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subprime second mortgage is that type of a mortgage which is taken against a property, which already has one mortgage and the mortgage borrower has a low credit score.
Usually, the credit scores range from about 300 to about 900. Most of the customers range in the credit scores between 600 and 700.
Subprime mortgages are those types of mortgages which are issued to individuals who have a poor credit history or poor credit rating.
Subprime second mortgages are sometimes called as subprime HELOC (Home Equity Line of Credit).
Usually borrowers implement subprime second mortgages for the purpose of debt refinancing and bill consolidation irrespective of their poor credit scores. This kind of mortgage is helpful for those people who do not wish to refinance their first mortgage, however, desire to gain access of their home equity for logical purposes like medical bills, college tuition, debt consolidation, or home improvements.
The borrowers of subprime mortgages are known as subprime mortgage borrowers and the lenders of subprime mortgages are known as subprime mortgage lenders. Subprime mortgage lenders offer first mortgage, second mortgage, as well as home equity loans to people who are not eligible for traditional financing.
An additional advantage regarding the subprime second mortgages is that the interest paid is subject to tax deduction.
Subprime mortgage is also called as bad credit mortgage or credit-impaired mortgage.
The different types of subprime mortgages include:
- Interest only mortgages
- "Pick a payment" loans
- Initial fixed rate mortgages which transform to variable rates
People who have the most likelihood to be eligible for a subprime second mortgage are:
- First-time home buyers
- Minorities
- Recent immigrants
- Older female borrowers
Usually, the borrowers who have credit ratings below 620 are often stuck with subprime mortgages and the high interest rates applicable with this kind of mortgages. This can be a result of late bill payments or declaration of personal bankruptcy and there is no option other than going for a subprime mortgage. The interest rates are higher but they are not the same for every subprime lender because the interest rate depends on a number of factors such as credit score, the down payment amount, and the kind of financial problems that the borrower had in the recent past.
Subprime second mortgages help borrowers to consolidate their credit card debt, as well as to finance other housebuilding projects. The borrowers have the option to refinance the adjustable rate mortgage loans with a fixed simple interest subprime second mortgage and make a substantial amount of monthly savings.
There is also a clause of prepayment penalty and balloon payment for subprime mortgages. These two things can be implemented together also. A prepayment penalty is a fee that is charged because of early repayment of the mortgage resulting from either selling the house by the borrower or refinancing the high-rate mortgage loan. A mortgage with a balloon payment clause requires that the borrower has to pay the whole outstanding amount in a lump sum after a certain period of time, and often that period is fixed at five years. If the borrower is not able to do so, the options open for him is selling the house or refinancing the house. Both prepayment penalties and balloon payments are related to higher foreclosure rates, but this is often debatable.
There are some subprime mortgage lenders who really try to help people who have credit problems. They provide loans at an affordable rate, but the borrowers really have to make an extensive search for them.
In some instances, where the first subprime mortgage rates are quite low or there is a huge prepayment penalty on the first subprime mortgage, it is prudent to refinance the second subprime mortgage only because with the help of subprime second mortgage, the borrowers can save more money.
The important subprime second mortgage lenders include the following:
- New Century Financial Corporation
- Ameriquest
- Citigroup
- Roadloans
- BD Nationwide
- Countrywide
- East West Mortgage
- Shelter Mortgage
- Mortgage Emporium