Some borrowers see a refinancing advantage in subprime situation

To many the situation surrounding subprime loans is seen as a major economic crisis that threatens the stability of our nation's housing market.

But to others those critics are viewed as people akin to "Chicken Little," creating a major catastrophe out of what in reality is a much less significant event.

Though some subprime borrowers have found themselves in difficult financial straits of late, many borrowers used the product to their advantage, going on to refinance to traditional 30-year fixed-rate loans.

In Utah, homeowners such as Karen Peavler of Roy are continuing to live the American dream of homeownership thanks to a subprime loan.

In 2006, the 42-year-old Peavler, a Realtor herself, was considering ways to manage her debt. But she didn't qualify for a conventional mortgage at the time.

She'd purchased her home in 1997 and, after remodeling last year, she decided to refinance her home using a subprime loan with a fixed two-year interest rate. She says it made the most sense for her circumstance because it would allow her to pay off her bills and get her finances back in order.

"In my opinion, that's what the loans are designed for. To allow people to square off their finances and move on to a traditional means of financing," Peavler said.

Peavler, who currently shares her home with two of her three children and two grandchildren, says she expects to refinance again when her fixed period ends in December 2008. By then Peavler says her bills will be paid off and she will be in a better financial position. For her, using a subprime loan has given her the opportunity to maintain her homeownership, something she's grateful for.

"Subprime mortgages are designed for those people who have credit scores below 620," explains Matthew Prestwich of National Mortgage Brokers in Murray, who handled Peavler's subprime refinance.

He said these loans are typically amortized over 30 years, but the initial rate or start rate is only fixed for two or sometimes three years after which time the rate adjusts to a (usually) much higher variable rate. Such types of loans are designed to force the borrower to refinance at the end of the two- or three-year fixed-rate period.

"It is in the best interest of the investors who provide the money for these loans to turn their loan portfolios over every two or three years. In the last few years investors have loved these loans," Prestwich said.