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Are Sub Prime Mortgages finally on the way out?

Author: RobKosberg Total views: 2 Word Count: 232

In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.

Borrowers typically chose between two main products of sub-prime loan. They either locked the initial rate in for 2 years or for 3. The predominate choice at the time was the 3/27.

This loan had a "teaser rate" fixed for the first 3 years and then it would adjust every six months thereafter. The rate would usually adjust based on the 12-month LIBOR plus a margin of 5.999 percent. In most cases the loan started out as interest only then became a full principal and interest mortgage.

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

Currently the 6 month LIBOR stands around 3.15 precent. This can be relatively good news for many people with sub-prime loans. It means that the adjustment will be somewhere in the 8 - 9 precent range which is down from 11 - 12 percent not long ago.

Borrowers last summer faced a much higher rate because of where the LIBOR stood.

Adjustments of any size can strain a household budget, though, so if you're a sub-prime borrower and your pending adjustment will cause financial strife, be proactive -- talk to your lender before you miss a payment.

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About the Author

If you are in the early stages to Buy a Home then Visit Rob Kosbergs' Detailed FREE Guide on Buying your Dream Home with a Zero Down Mortgage or for up to date Mortgage info visit his Mortgage Blog

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