Lending institutions often charge a higher interest on which type of mortgages to compensate for increased risk?

Subprime mortgages are characterized by higher interest rates due to the increased risk they pose to lending institutions. These loans are issued to borrowers with lower credit scores or limited credit histories, which can indicate a higher likelihood of default. Because of this heightened risk, lenders compensate by charging higher interest rates in order to mitigate potential losses. The increased rate reflects not just the risk associated with the borrower's creditworthiness, but also the potential for higher costs in case of defaults or foreclosures. This practice helps lenders to balance their portfolios and ensure profitability, even when making loans to borrowers who are more likely to encounter difficulties in meeting their repayment obligations.

Other types of mortgages listed, such as predatory mortgages, FICO mortgages, and participation mortgages, do not typically operate under the same framework of risk assessment as subprime mortgages, making them less relevant in this context. Predatory mortgages often involve unfair lending practices, while FICO mortgages might refer to loans based on creditworthiness that would typically not include a higher interest rate due to credit risk. Participation mortgages generally involve shared equity agreements that do not specifically correlate with risk-based pricing practices.