Definition of Subprime Mortgage

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What is a subprime mortgage? What is the definition of the term "subprime mortgage"?

A subprime mortgage is a mortgage that is given to a person that is deemed to be of a lesser credit quality compared to those who receive standard mortgages.

A person who qualifies for a subprime mortgage has a lower credit score due to missed payments or even a bankruptcy.

Greater risk for the lender equates into a higher interest rate, as a person with weaker credit is more likely to miss payments or default.

The implosion of the subprime mortgage market in 2007 was the key impetus behind the near-collapse of the financial system that occurred in the fall of 2008. Due to a housing market that was in a steady upwards trend, lenders were eager to do business with people that were of a greater credit risk. This inclusion of "non-standard" people into the housing market (those with lower credit scores that would have never entertained buying a home in any other circumstances) helped propel the housing market to absurdly high levels.

Of course, when the real estate market started to stumble, the subprime mortgage market was the first to crack, as many mortgage holders didn't have the means to pay their mortgages in the first place.


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