Should I Steer Clear of Sub Prime Loans?

by : Ajeet Khurana

If you have listened to the radio, read a newspaper, talked to friends and family, or even gotten on the internet over the last six months you have undoubtedly heard about sub prime loans. These loans have been made to a lot of people over the years and in recent months many people have lost their homes as a result of these mortgages.

If you think that you absolutely should not accept one of these financing offers if they are made to you because of the bad press that they have gotten, you shouldn't be so fast to dismiss the possibility. There are a lot of people who will still find these financing programs very appealing and the best option for them. Do a little research to see if it works out for you.

Sub Prime Loans And You

Sub prime loans in and of themselves are not bad, it's the way that they have been used that has led to negative consequences. Over the years these mortgages were offered to people who had less than perfect credit and did not have many options available to them where getting into a home was concerned.

Lenders began offering these loans to people that they knew wouldn't turn them down because they had bad credit, and perhaps lower income levels as well. The lenders were able to offer these people very low introductory interest rates that would adjust after a specific amount of time.

The problem is that a lot of people didn't know what this meant, and so they found themselves in a place where they could no longer afford their home payments. Sub prime mortgages don't have to be a bad choice; you just have to know what you are getting into.

If you know that you will only be living in a house for a couple years this may actually be a great option for you. The interest rate will usually start out below market rates and you will be able to pay very little in the way of monthly payments.

If you know that you will be in the home for just a few years you may see very slight increases in the interest rate, if any at all. Since you are not going to live in the home for that long you aren't worried about building equity and therefore paying the small monthly payments makes sense.

Many people have become afraid of sub prime and adjustable rate mortgages but the fact of the matter is that these lending practices still work for some people. If you know that you will only be in the home for a short period of time then why not pay as little as possible?

As long as you understand the lending process and what the details are of your loan, this doesn't have to be a negative experience. And, as long as you know what you are getting into, this is still something that you could consider. Just be sure to step with caution when you consider this option seriously.