Subprime Mortgage

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.