What is a subprime mortgage?

Simply put, it’s a high-cost loan. The interest rate, fees and penalties are higher than what lenders charge a standard, or "prime," borrower. A subprime loan typically has an annual percentage rate at least three points above what U.S. Treasury securities of similar maturity are offering investors.

Who gets a subprime loan?

Lenders often make such loans to borrowers with weak credit histories, small down payments or large amounts of debt relative to their incomes, or who are seeking a mortgage amount close to the market value of their home.

Why do they cost more?

Lenders charge more to offset the higher risk involved. Borrowers with checkered credit histories or other problems are more likely to default on their mortgage than borrowers without such credit baggage.