What is a subprime mortgage?

A subprime mortgage is specifically designed for borrowers who have credit ratings that are considered below average or less than perfect. These individuals may have a history of missed payments, high debt-to-income ratios, or other factors that make them riskier to lenders. Consequently, subprime mortgages typically come with higher interest rates to compensate for the increased risk taken by lenders.

This type of mortgage allows access to home financing options for those who may not qualify for standard loans, thus expanding opportunities for homeownership among a broader segment of the population. Additionally, while subprime loans can enable some borrowers to purchase homes, it's vital to understand that the associated higher costs can lead to financial strain if not managed appropriately. Other options provided do not accurately capture the essence of what a subprime mortgage entails.