Do I Have A Prime Loan Or A Subprime Loan?

“I’M CONFUSED AS TO WHAT TYPE OF LOAN I HAVE. I THINK I HAVE A SUBPRIME LOAN, BUT I’M NOT SO SURE. HOW CAN I TELL? WHAT’S THE DIFFERENCE BETWEEN A PRIME LOAN AND A SUBPRIME LOAN ANYWAY?”

With subprime loans in the national news spotlight, many borrowers are wondering the same thing—especially those who took out their current loan several years ago. To answer your question in simple terms, you may have a subprime loan if your loan had a fixed rate for the first two years (or less) or else your loan had a “teaser” rate that adjusted upwards following your first payment. In general, subprime loans have substantially higher start rates, shorter terms, prepayment penalties, and in many cases require larger down payments. However, while most subprime loans are indeed interest-only, that doesn’t mean you have a subprime loan. For example, an interest-only 5-year ARM with a 0%, 5%, or 10% down payment isn’t a subprime loan in most cases. Also, if your credit score was above 620 when you applied for your current loan, you more than likely have a prime loan rather than a subprime loan. Finally, if you were able to get a second trust you probably don’t have a subprime loan either. If you’re still confused about what type of loan you have, consult with mortgage professional.  ∆