What does the term 'subprime mortgage' refer to?

The term 'subprime mortgage' specifically refers to a loan extended to borrowers who have lower credit ratings compared to prime borrowers. These individuals typically have a history of credit problems, such as late payments, defaults, or bankruptcies, which makes them higher risk for lenders. As a result, subprime mortgages often come with higher interest rates to compensate for that risk. This distinguishes them from loans offered to borrowers with good credit, who qualify for more favorable terms.

The other options do not accurately describe subprime mortgages. Favorable terms typically refer to loans for borrowers with strong credit histories, while federal loan programs usually involve specific guidelines and protections for buyers. Loans with no required down payment can apply to various types of mortgages, including those for prime borrowers or special programs, but do not specifically classify as subprime.