Learn What Subprime Home Loans are and How They Work

Getting a loan for your dream home can be easy, especially if you are credit worthy. However, if you have a credit standing that is in the red or less than impressive, getting good deal of a loan can be quite a challenge. However, because more banks and finance corporations do recognize the fact that there are quite a lot of individuals and potential homeowners with bad credit, they began to offer subprime home loans.

Subprime home loans are mortgages or loan options given to those with a FICO rating of 620 and below. This usually comes with interest rates that are much higher than prime loans or borrowings because lending companies and financial corporations are giving out loans to a market that is considered high risk. A not so good credit rating simply means you are less likely able to make loan payments, thus the risk.

However, despite the high interest rates, subprime home loans have become very attractive to a lot of aspiring homeowners. This is because most subprime home loans are being offered at an interest rate that may be slightly higher than that of prime loans and mortgages but are just the same, fixed rates for the first two or three years. The interest rates of course jumps to a much higher level after the fixed rate period. Thus if you are a homeowner who intends on building up your credit score in the next couple of years, and you think you can meet the monthly amortizations of subprime home loans, then there should be no stopping you from getting that new home.

Most home owners who have built up their credit standing will subsequently try to have their subprime loan refinanced. This simply means that because they have a better credit standing, it is more likely that they will be able to apply for a new loan to pay off the subprime home loan. This is a good strategy especially if the new loan comes at an interest rate that is much lower that the rates that are applied to subprime mortgages and home loans. Ideally, this should be done before the interest rates of the subprime loan increases.

Having a subprime mortgage or home loan refinanced to a better loan deal definitely has its advantages. A refinanced mortgage can result to having more cash on hand month after month, and more savings at that. At the same time, it is also possible that you are able to have your loan restructured to a shorter loan term or period.

For example if your original home loan is given at a 30-year term, it is possible that you will be able to have your new loan at a shorter term, say 20 or 25 years. Of course, shorter loan terms can mean higher monthly amortizations despite a lowered interest rate. In the end it will be all up to you to make it work. The key to making these loans work to your advantage lies in your capability to accurately assess your financial standing.