Which mortgage type is most likely to be considered a high-risk loan?

Which mortgage type is most likely to be considered a high-risk loan?

• A. Insured Mortgage
• B. Subprime Mortgage
• C. Conventional Mortgage
• D. FHA Loan

Answer: (B)

A subprime mortgage is categorized as a high-risk loan primarily because it is typically offered to borrowers who have lower credit scores or limited credit histories. These borrowers may have a higher likelihood of defaulting on their loans due to their financial history, leading lenders to consider these loans more hazardous. As a result, subprime mortgages often come with higher interest rates and less favorable terms compared to other types of mortgages. For instance, insured mortgages, conventional mortgages, and FHA loans are generally designed for borrowers with better credit profiles or offer certain protections and guarantees that mitigate risk for both the borrower and the lender. Insured mortgages often include insurance that protects the lender against default, while FHA loans cater to more qualified borrowers and provide lower down payment options. Conventional mortgages usually require sound credit and financial stability, further reducing the associated risk. This helps keep their overall risk profile at a much lower level compared to subprime mortgages.

A subprime mortgage is categorized as a high-risk loan primarily because it is typically offered to borrowers who have lower credit scores or limited credit histories. These borrowers may have a higher likelihood of defaulting on their loans due to their financial history, leading lenders to consider these loans more hazardous. As a result, subprime mortgages often come with higher interest rates and less favorable terms compared to other types of mortgages.

For instance, insured mortgages, conventional mortgages, and FHA loans are generally designed for borrowers with better credit profiles or offer certain protections and guarantees that mitigate risk for both the borrower and the lender. Insured mortgages often include insurance that protects the lender against default, while FHA loans cater to more qualified borrowers and provide lower down payment options. Conventional mortgages usually require sound credit and financial stability, further reducing the associated risk. This helps keep their overall risk profile at a much lower level compared to subprime mortgages.