Glossary of Subprime Financing Terms
1. Non-Prime: A term typically used for subprime mortgages or loans meant for borrowers considered a high risk. Another common term is second-chance mortgages.
2. Teaser Rates: A rate that is intentionally low to lure people in, but will adjust by more than 5% after the teaser period ends. It may even jump up again in a couple of years.
3. Negative Amortization: A predatory subprime mortgage lending practice that occurs when monthly payments do not cover the interest due on the loan. The unpaid interest is then added to the mortgage balance causing the overall amount of the loan to increase.
4. Prepayment Penalty: A large penalty fee that is incurred when you pay off a mortgage early by selling or re-financing the house.
5. Equity: The difference between the amount owed on the mortgage and the market value of the house.
When using a home to get out of debt make sure you understand these terms for saving money.