US subprime mortgages making a comeback

Borrowers with bad credit were shut out of the mortgage market after the US housing bubble burst, but now a handful of small lenders are starting to offer subprime loans again.

Once synonymous with toxic, adjustable-rate mortgages – like the "exploding ARMs" that led many homeowners to lose their homes to foreclosure during the housing bust – subprime mortgages are once again being offered to borrowers who pose a higher credit risk.

This time the loans are much more costly.

During the housing bubble, lenders were handing out subprime loans with cheap teaser rates and little or no down payments.

Now lenders are charging interest rates as high as 8 per cent to 10 per cent and requiring borrowers to make down payments of as much as 25 to 35 per cent.