Prime rate loans

The term ‘prime rate loans,’ within the mortgage industry, refers to loans with low interest rates. Borrowers must be highly qualified (with little to no risk associated with their loan) in order to qualify for prime interest rates.

On the other end of the spectrum likes subprime rates, which are for borrowers with troubled credit histories. Such interest rates are well above what the average person qualifies for. The higher interest is meant to offset the risk the lender assumes by lending less qualified borrowers money. Typically, borrowers can refinance subprime mortgages after they have cleaned up their credit, but it remains unlikely that they will qualify for prime interest rates.

In fact, a borrower has to be near perfect to obtain a prime rate. Even borrowers who qualify for prime rates sometimes choose to go with a higher interest rate. Why? This is because the interest rate doesn’t mean everything. Sometimes buyers can get away with making a lower down payment if they agree to a higher interest rate. Other times, buyers can eliminate or reduce closing costs by choosing a higher interest rate. The list goes on.

In any case, it is good to know what characterizes a borrower eligible for prime interest rates. First and foremost, the borrower’s credit history must be solid. That means that the borrower has taken out credit in the past, and repaid it responsibly and punctually. Furthermore, the borrower’s debt-to-income ratio must be satisfactory. That means that the borrower is only using a certain percentage of their income to pay off debt.

Shop around with different lenders to see if you qualify for a prime rate. It certainly never hurts to ask.