Changes

A type of [[loan]] that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

A type of [[loan]] that is offered at an initial [[interest rate]] below the 'prime rate', which will then escalate later in the term of the loan, or mortgage. Quite often, subprime borrowers are turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.  It is attractive to speculative buyers and lenders as well, who hope to re-sell a house for a profit (purchased with the sub-prime loan) after a quick appreciation in its market value, without the holder having gained equity through significant payment of the [[principal]] of the loan.

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

Subprimes 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 bonds to [[hedge_fund|hedge funds]] and [[bank|banks]] all over the world. The buyers could used them as collateral to secure more loans so they could buy more bonds and so on and so on.

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 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 rising interest payments over the term of their loans, 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 bonds, and the general economy due to widespread practice.

[[Category:Economics]]

[[Category:Economics]]