Prime mortgage: A mortgage with the benchmark interest rate that banks charge their most creditworthy borrowers. The rate can be fixed or it could adjust after a certain period.

Alternative-A mortgage (Alt-A): This mortgage classification is considered riskier than a prime loan but not as risky as a sub-prime loan. Alt-A covers mortgages for those who borrow with small down payments or who have erratic incomes. It also includes interest-only loans for a fixed period before the principle comes due and mortgages in which borrowers can pay less than the full interest due, thereby boosting the principal balance still owing.

Subprime mortgage: These least desirable and riskiest of mortgages are typically extended to borrowers with bad or questionable credit histories. Sometimes predatory lenders didn’t even require proof of income or credit history.  The intention was to get the borrower locked in to higher interest rates and fees that would adjust higher after a certain period of time.

These predatory lending institutions were not concerned with the borrower’s ability to repay, because the long-term plan was to package these questionable loans into mortgage-backed securities and sell them off their books.