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Subprime Mortgages

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Subprime Mortgages
Definition: A subprime mortgage is granted to borrowers whose credit history is not sufficient to get a conventional mortgage. Often these borrowers have impaired or even no credit history. Subprime mortgages often offer interest-only loans. That's because an interest-only loan is easier to afford. The loan doesn't require that any of the principle be paid for the first several years of the loan. Most borrowers assume they will refinance before the principal needs to be repaid, and the monthly payment increases. If they can't refinance, they often are forced to default because they can't make the higher payment.

Subprime mortgages were one of the causes of the 2009 recession. For more on this, see A Primer on the Subprime Mortgage Crisis. (Updated January 5, 2010)

Alternate Spellings: sub-prime
Examples:
Homeowners with subprime mortgages are most likely to default when the housing market declines.
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