Sub-Prime Mortgages Mississauga
A Sub-Prime mortgage is a mortgage loan given to a borrower who has a bad credit history or is earning significantly lower income than is needed to qualify for a low interest mortgage at a traditional bank.
Types of Sub-Prime Mortgages
Similarly to prime mortgages you have several option when choosing the type or rate, amortization period, term and more.
The 3 most common types of sub-prime mortgage options are:
- Fixed-rate sub-prime mortgage
- Variable-rate mortgage
- Interest-only mortgage
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1. Fixed-Rate Sub-Prime Mortgage:
You, the borrower, have the option of getting a fixed sub-prime mortgage. As a result, you may relax knowing that your rate won’t go up even if the prime lending rate does so during the course of your mortgage. This guarantees that your monthly payments will be the same for the duration of your mortgage. A benefit of a sub-prime mortgage over a conventional mortgage is the ability to increase the repayment period from 30 to 35 years. Lower monthly payments as a result can make managing your cash flow easier. Even though your monthly payments might be lower, paying off your mortgage in 30 years would result in a 35-year period during which you would pay less interest overall.
2. Variable-Rate Mortgage:
Variable rate mortgages tend to have a lower rate than a fixed rate mortgage. Main downfall when taking a variable mortgage is that if the prime interest rate increases, the interest rate you are paying might increase as well and this can result in an increase in your monthly mortgage payment. If the rate drops, your interest and monthly payment might also decrease.
3. Interest-Only Mortgage:
Many private lenders offer interest only mortgage option as a short term solution to help keep you monthly mortgage payments as low as possible to help you manage your cash flow. With an interest only mortgage, your goal is to be able to take the extra cash flow and put it towards paying down higher interest debts and past due debts in order to improve your credit score so that you can qualify for a more traditional prime mortgage loan in the future.
Types of Mortgage Lenders
Prime Lenders:
Prime lenders such as chartered banks and monoline lenders. Chartered bank and monoline lenders include banks such as TD Bank, Scotiabank, First National and more. Prime lenders have much stricter qualifying guidelines and they tend to focus their efforts on approving clients who have steady jobs and strong credit scores and credit history.
Alternative Lenders:
Alternative lenders who are also known as “B” or subprime lenders, which are non-conventional institutional lenders and private lenders. Alternative lenders are only available through a licensed mortgage brokerage and include institutions such as Home Trust, Community Trust, Equitable Bank and some private lenders who offer low rates that are competitive with institutional alternative lenders. These lenders have less strict guidelines than prime lenders.
Alternative lenders are often appropriate for self-employed clients or for clients who do not have the best credit but are still able to comfortably make their mortgage payments on time. The interest rates are higher than what the prime lenders may offer but depending on your situation you might still be able to qualify for a great rate.
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