a loan offered to applicants with less-than-topquality credit ratings (sometimes referred to as "B-C lending" because of the letter grade assigned to applicants through credit scoring). Such loans typically carry a higher interest rate, more discount points, and a lower maximum Loan-To-Value ratio compared to standard mortgage loans. Not all lenders offer such loans, although some lenders specialize in the product.
Example: Because the Collinses had not established a credit rating, they were forced to use a sub-prime loan to finance their first home purchase. The loan requires interest payments at 9% per year and a cash down payment of 25%, whereas the going mortgage interest rate was 7.5% with 10% down payments readily available to more creditworthy borrowers.
