Changes

Subprime loans have an overall higher interest rate than the prime rate offered on traditional loans. The delayed additional percentage points of interest often translate to tens of thousands of dollars worth of additional interest payments, and slow repayment of the principal over the later life of a longer term loan. It is meant to compensate the lender for the additional risk of taking on a 'subprime borrower'.

Subprime loans have an overall higher interest rate than the prime rate offered on traditional loans. The delayed additional percentage points of interest often translate to tens of thousands of dollars worth of additional interest payments, and slow repayment of the principal over the later life of a longer term loan. It is meant to compensate the lender for the additional risk of taking on a 'subprime borrower'.

Subprime loans represented about 20 per cent of the $3-trillion US mortgage market in 2006.  Hundreds of billions of dollars' worth of subprime mortgages have been gathered together and resold as parts of bonds to [[hedge_fund|hedge funds]] and [[bank|banks]] all over the world. The buyers could use them as savings or collateral to secure more loans, so they could buy more bonds and so on and so on.  The fact that real estate values did not continuously rise, and subprime mortgage payments became unaffordable to holders due to greatly rising payments over the term of their loans without increasing their equity, made a traditionally secure bond in real estate become insecure. Losses have been shared by all of buyers, sellers and resellers of these subprime loans and corresponding bonds, and the general economy due to the widespread practice.

Subprime loans represented about 20 per cent of the $3-trillion US mortgage market in 2006.  Hundreds of billions of dollars' worth of subprime mortgages have been gathered together and resold as parts of bonds to [[hedge fund]]s and [[bank]]s all over the world. The buyers could use them as savings or collateral to secure more loans, so they could buy more bonds and so on and so on.  The fact that real estate values did not continuously rise, and subprime mortgage payments became unaffordable to holders due to greatly rising payments over the term of their loans without increasing their equity, made a traditionally secure bond in real estate become insecure. Losses have been shared by all of buyers, sellers and resellers of these subprime loans and corresponding bonds, and the general economy due to the widespread practice.

[[Category:Economics]]

[[Category:Economics]]