See: Subprime. See: Mortgage. See: Subprime Meltdown.
A prime mortgage is a home loan of, say, $450,000 granted to a power couple with no kids, where she earns $285,000 a year as a divorce lawyer and he earns $240,000 as a proctologist. They bought a $600,000 home, putting $150,000 down (low risk to the bank of the home being worth less than $450,000 plus costs), and this couple has over a million bucks invested in the stock market. Very prime. Very low odds of failing to pay on this mortgage.
Subprime is the couple who stretches to get there. She's a non-union school teacher making $52,000 a year; he's a Home Depot manager making $48,000 a year. Together, they make $100,000, and they want a house as close as they can get to the laywer-and-doctor couple. So they try to borrow $250,000 to buy a $300,000 home, putting just $50,000 down. And no, they have no brokerage account, no real savings. They are...subprime. Sorry, but keepin' it real.
They just didn't have the financial horsepower that the prime couple had, so they're gonna pay higher interest rates, have a way harder time getting a loan, and when they do, well...be very nervous that Home Depot gets Amazon'd, and they're trying to make payments as a one-salary family. Bad sitch.
Related or Semi-related Video
Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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