Subprime Mortgage Loans - A Borrower's Guide to Subprime Lending

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Subprime Mortgage Loans - A Borrower's Guide to
Subprime Lending
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• With the numerous mortgage options being offered
  by mortgage lenders today, newcomers to the arena
  may find the scenery just plain confusing. If
  you're planning to get a mortgage loan, and you
  don't know where to start, here is a list of the
  basics that you need to know about.

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Mortgage Defined
A lot of people tend to use mortgage to mean a
mortgage loan. A mortgage refers to the document
that you, as a borrower, sign and entrust to a
mortgage lender in return for a mortgage loan. If
you default on your mortgage payments, the
mortgage lender, through the document called
mortgage, has the right to take possession of
your property. The borrower, the one who applies
for a mortgage loan, is referred to as the
mortgagor since it is the borrower who hands the
mortgage over to the mortgage lender.
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Mortgage Loan

• The basic premise of a mortgage loan is that it
  is a type of loan used to pay the difference
  between the purchase price and the cash available
  for a down payment. When mortgage lenders let you
  use their money, they will charge you a fee for
  it. The biggest fee is called the interest, which
  is expressed as an annual percentage of the loan.
  Usually, it is in the range of a low 5 and a
  high 12. When you apply for a mortgage loan at
  one of these financial institutions, they will
  also charge you with an origination fee, which
  may include application fees, credit report fees
  and appraisal fees. The annual percentage rate
  (APR) consists of the base interest rate with
  points and other fees.

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Mortgage Loan Rates

• The mortgage loan comes in a fixed rate and
  adjustable rate. A fixed rate mortgage loan
  refers to a loan that features a fixed interest
  rate and fixed monthly payments for the entire
  life of a loan. Mortgage lenders typically offer
  15- and 30-year fixed rate mortgage loans. An
  adjustable rate mortgage loan features lower
  initial rates, which may change as frequently as
  every six months. Borrowers who prefer going the
  least expensive way can opt for the 15-year
  mortgage loan. However, this type of loan is
  suitable for those who can afford the higher
  monthly mortgage payments. For people who plan on
  moving to another home in less than eight years,
  may find it more appropriate to settle for a
  30-year mortgage loan, with its lower monthly
  mortgage payments.

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Mortgage Loan and Down Payment

• The down payment made on a house is usually in
  the range of five to 20 percent. The down payment
  precedes the mortgage loan, or the amount
  borrowed on the residual cost of the house. Thus
  a house that's worth 450,000, you will require a
  down payment of 90,000 and a mortgage of
  360,000.

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Basic Mortgage Interest

• Interest rates are prone to fluctuations, which
  make them highly unpredictable. There are two
  popular indices of short-term interest rates. The
  first one is the rate banks offer for six-month
  certificates of deposits (CDs). The second one is
  the interest on Treasury Bills, or T-bills.
  Mortgage lenders operate by charging around 2.5
  over the publicly quoted interest rate. Compared
  to short-term rates, long-term rates are higher
  since they expose lenders to greater risk when
  lending money for a long time.

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