Finance
A subprime mortgage in Nebraska typically features which of the following?
ABelow-market interest rates for low-credit-score borrowers
BHigher interest rates and fees for borrowers who do not meet prime lending standards✓ Correct
CNo income verification requirements
DGovernment backing to reduce lender risk
Explanation
Subprime loans are made to borrowers with lower credit scores or other risk factors and carry higher interest rates and fees to compensate the lender for the increased risk of default.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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