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Subprime mortgages are commonly used by those that have negative credit histories in order to purchase a home. If you are getting involved in the subprime mortgage market, here are a few of the terms that you should expect to see.
High Interest
Regardless of what type of subprime mortgage you are going to get, you are going to have to pay high interest rates. High interest rates are synonymous with the subprime mortgage industry because they are taking on additional risk by working with subprime borrowers.
Prepayment Penalties
Many subprime borrowers try to prepay their loans so that they can avoid paying as much interest. However, in many cases, you will have to watch out for prepayment penalties. This is a penalty that you will have to pay if you pay more than a certain amount of the balance of your mortgage within a given year.
Escrow
In the traditional mortgage market, you will typically find escrow on every type of mortgage. This is a type of account that will pay your insurance and taxes for you. With the subprime mortgage market, this type of account is not required in all cases.
Interest-Only
Many subprime mortgages are set up to be interest-only loans. This means that you will only pay the interest every month and then at the end of the loan, you will have to make a balloon payment for the balance.
