Subprime Remortgage: Real Comfort or a Heavier Burden!

Since the onset of the financial crisis last year, more and more people are finding it difficult to manage their funds to pay off their debts. What with the volume of layoffs in various establishments, this is actually expected!

During these times, homeowners go for their next option which is subprime remortgage when other options fail like loan modification in order to save their home and their dignity. The question here is: Does subprime mortgage really offers comfort or it is just a temporary relief that will prove to just add to the homeowner’s burden later on?

What is a subprime remortgage?

When individuals fail to pay their monthly amortizations in their loans or the whole loan in general, they get to have lower credit ratings. Credit ratings are the basis of institutions when they grant loans of individuals and corporations.

Normal thinking tells us that institutions would favor individuals with high credit ratings as the risks are lower that they will not be able to pay off their loans. However, there are some institutions that are willing to grant loans to individuals with low credit ratings. For example in the real estate industry, individuals who have a mortgage that is to be foreclosed can mortgage their homes again. This is subprime remortgage.

Subprime remortgage is a kind of loan given to homeowners who are facing foreclosure to be able to save their home. Since subprime mortgages involve higher risks, lenders who offer these loans usually place a high interest on the loan to compensate for the risks involved.

Some examples of subprime remortgage are the following: fixed rate mortgages, adjustable rate mortgages, balloon mortgages, mortgages not needing any documentary requirements, etc.

What’s in for you in a subprime remortgage?

Subprime remortgage offers instant relief to the erring homeowner who is about to lose their home. This is the reason why most of the homeowners were enticed by the prospect of a subprime remortgage. Usually subprime remortgage is the next option if the homeowner was declined in their application for loan modification.

Subprime remortgage is a stop gap measure for the homeowner. Homeowners would resort to subprime mortgage because they cannot afford to pay the current terms of their loans with their primary lender.

Subprime remortgage offers easier payment terms to the homeowner. Homeowners may be able to negotiate better terms with the lender who granted their subprime remortgage. Although the interest may really be higher, the monthly amortizations may be lower. At this point, homeowners need lower monthly amortizations to be able to pay the monthly amortizations.

So, what’s the catch?

As I have been reiterating, subprime remortgage charges high interests to the borrowers. Apart from the high interest, some lenders require a prepayment before they would take on the mortgage not to mention other charges.

There are some subprime remortgage agreements that have adjustable interest rates. These loans are dependent on the prevailing interest rates. The amount of the loan can blow up if the interest rates were increased which will make it hard for the homeowner to pay.

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Subprime Remortgage: Real Comfort or a Heavier Burden!