Subprime Second Mortgage

Many people who seek a second mortgage will have to get a subprime second mortgage which will be substantially more expensive.

A subprime mortgage is a mortgage with a higher interest rate that is made available to those who cannot qualify for mortgages with the prime or standard interest rate. Subprime mortgages are usually issued to those lenders consider bigger risks of defaulting. This includes people with bad credit and those with low incomes.

Many people are forced get subprime second mortgages because their credit is bad. Lenders may also consider those who seek second mortgages riskier and only offer subprime second mortgages to them.

Disadvantages to Subprime Second Mortgages

The biggest disadvantage to subprime second mortgages is the terms many lenders require. Many subprime second mortgages are Adjustable Rate Mortgages or ARMS. In an ARM the lender has the ability to raise the interest rate and the mortgage payment during the history of the mortgage. This can substantially raise mortgage costs.

This can really hurt a lender because subprime mortgages often come with much higher interest rates to begin with. The subprime mortgage rate could be five or seven points than the interest rate on prime mortgages. This could translate into payments that are 20% or 30% higher.

A subprime second mortgage may also come with a lot of mortgage insurance. Mortgage insurance or private mortgage insurance can raise the cost of a mortgage by as much as 15% or 20%.

This means that subprime second mortgages will always be more expensive than standard mortgages.

Avoid Subprime Second Mortgages

It is best for homeowners to avoid subprime second mortgages because they are so expensive. A homeowner should remember that a second mortgage means a second mortgage payment. This will mean less money available to pay bills and meet daily expenses.

Increasing the cost of the mortgage can increase the possibility of foreclosure. It will increase the amount of mortgage debt which will hurt your credit rating. Another drawback to second mortgages is that less equity in the home will be available for future borrowing.

Homeowners should only take out a subprime second mortgage when they have no other choice. The high costs make these mortgages a very bad deal for most homeowners.

Other Names for Subprime Second Mortgages

Subprime mortgages are marketed under a number of different names including equity loans and home equity loans. Lender want to make these loans because they are high interest and very profitable. The equity loans advertised on television and sold on line are actually subprime second mortgages.

Homeowners should make no mistake these loans are second mortgages. They will decrease your equity and increase your mortgage debt and your risk of foreclosure.