Owning a home in Bangladesh is everyone’s dream. It is a sign of status and power. Given the economic opportunity, fulfilling this dream is not easy for all working families in the country. However, various schemes such as mortgage opportunities, or other enticing housing loan plans, exist. What is a subprime mortgage?
A subprime mortgage is a type of mortgage loan and is only different in one minor aspect; this loan type is exclusively granted to people with low credit scores or impaired credit history. Most of the time, they were late in paying their bills or have low yearly income. These factors hinder them from obtaining a conventional mortgage scheme. The most important question is, therefore, how does the payment plan or the procedure differ from the traditional system that we are used to?
In a nutshell, because these borrowers have a higher risk of not paying the loan back, the rate of interest will be slightly higher than the prime lending rate. The lenders may even put greater closing costs, or require a comparatively higher down-payment to compensate for the risk.
It is worth mentioning that there are several types of subprime mortgage depending on region, country, and the respective real estate market situation. The most common kind of subprime mortgage is an adjustable rate mortgage, which involves a steady initial charge then converting to a floating rate based on the market situation, it can rise and fall, often drastically.
Other popular subprime loans include interest-only-loans that can look very affordable but can have complications if the monthly payments, which are very high, are not done. Ultra-long fixed-rate loans that extend over 40 years instead of the usual 30 year or less is also a subprime loan type. Some payment schemes include a very low monthly payment at first, but after 5 to 7 years, hefty payouts are required to pay back the rest.