A subprime mortgage is a type of home loan that is typically offered to borrowers with lower credit scores or a limited credit history. These loans carry a higher risk for lenders because borrowers may have a history of late payments, defaults, or other financial difficulties. As a result, subprime mortgages usually come with higher interest rates compared to prime loans, which are offered to borrowers with better credit profiles.
Subprime mortgages can be used to help individuals who might otherwise struggle to secure financing for a home. However, they can also lead to financial difficulties for borrowers if they are unable to keep up with the higher payments, potentially resulting in foreclosure. The subprime mortgage market was a significant contributor to the financial crisis of 2007-2008, as many borrowers defaulted on their loans, which led to widespread instability in the housing market and the broader economy.