Subprime loans are pricey, but can help credit history

Who is a candidate?

The advice is mixed, but generally speaking, someone whose monthly obligations are swallowing too much of the weekly paycheck might benefit from refinancing the mortgage at a subprime rate and taking out cash in the process to pay off debts. The cost over the loan's lifetime will rise, but the tax-deductibility of mortgage interest makes it cheaper than the interest charged on most credit cards, auto loans and the like.

And subprime loans can help renters become homeowners. While the rate charged will be high, a one- or two-year history of on-time mortgage payments will help demonstrate creditworthiness. That, in turn, could mean a less expensive refinancing down the road, assuming rates don't spike.

Still, experts caution that getting a subprime loan means much greater interest costs over time. A 30-year fixed loan for $200,000 at the higher rate of 8.5 percent, for instance, would have monthly payments of $1,538 and total interest of $353,618. Compare that with the 5.51 percent national average (based on a Bankrate.com survey in October 2005), the same loan would require payments of just $1,137 and cost $209,000 in total interest -- a savings of $145,000 over the life of the loan.