Subprime Mortgage Rate

The interest rate on a subprime mortgage will almost always be higher than the rate charged on standard or prime rate mortgages.

The term subprime mortgage refers to the interest rate charged on these mortgages. The lowest interest rate is charged on a prime mortgage because it is issued to those borrowers on whom lenders take the least risk.

Higher rates are charged on subprime mortgages because lenders take a higher risk by issuing mortgages to those homeowners. Borrowers with bad credit and low income borrowers will often pay the subprime mortgage rate because they run the highest risk of defaulting on their mortgages.

Subprime Mortgage Costs

The costs of subprime mortgages will always be much higher than those for prime mortgages for a variety of reasons. The subprime mortgage rate will always be higher because the risk is higher.

If the interest rate for a prime mortgage is only 4% or 5% the subprime mortgage rate can be as high as 8% or 10%. The subprime interest rate is higher in order to ensure subprime mortgage lenders a higher return on their investment.

Subprime mortgages also come with more mortgage insurance which can greatly increase mortgage costs. Mortgage cost insures lenders against the risks of issuing subprime mortgages. It can add several hundred dollars to the cost of a mortgage every year.

Many subprime mortgages are also adjustable rate mortgages or ARMS. This means that the lender has the right to increase the interest rate at some point during the life of the mortgage. Raising the interest rate can increase the amount of the monthly mortgage payments.

Getting a Better Subprime Mortgage Rate

There are some ways to get a better subprime mortgage rate for those who are willing to take the time.

Shopping around and visiting a wide variety of lenders may help a person locate a better rate on a subprime mortgage. Going online can help a homebuyer locate a large number of subprime lenders some of which may offer better rates.

Improving your credit score can also help. A person with a higher credit score can get a better interest rate. It is possible to improve your credit score by eliminating negative information from your credit report.

A buyer who is willing to make a big down payment can usually get a better subprime mortgage rate. A person can eliminate the mortgage insurance requirement by making a down payment that is equal to 20% of the mortgage principal.

Refinance Subprime Mortgages

A person who is paying the subprime mortgage rate should check and see if they can refinance their mortgage. Converting a subprime mortgage to a prime mortgage can substantially lower both the interest rate and the mortgage payments.

If your credit rating has improved since you got your mortgage or your income has increased you should be able to refinance your subprime mortgage. Refinancing should be able to get you a better mortgage rate.