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4/1/2007 3:34 AM

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According to Bankrate. com, which is the online version of the banking industry trade publication Bankrate Monitor, subprime mortgages are written for borrowers with credit scores under 620. Credit scores range from about 300 to 900, with most consumers landing in the 600s and 700s. Someone who is habitually late in paying bills, and especially a person who falls behind on debts by 30, 60 or 90 days or more, will suffer from a plummeting credit score. If the score falls below 620, the consumer is in subprime territory.

Despite pinpointing subprime candidates by a credit score threshold, subprime mortgage rates are impossible to generalize, since lenders consider many factors related to "risk-based pricing" to arrive at mortgage rates and terms. While subprime rates will be higher than traditional mortgage rates, the final total will depend upon credit score, size of downpayment and the types of delinquencies the borrower has had in the recent past, ranging from late mortgage or rent payments to late credit card payments.

Bankrate.com also notes that subprime loans are more likely to have a prepayment penalty, balloon payments or both. With a balloon payment, the borrower is required to pay off the entire outstanding amount in a lump sum after a certain period has passed, often five years. If he or she can't pay the entire amount when the balloon payment is due, the loan must be refinanced or the house must be sold.

The Bankrate Web site recommends that potential borrowers should determine their credit score before they shop for a mortgage.

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Source: Bankrate.com

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