UK Clinical Aptitude Test (UKCAT) Practice Test

Which term is commonly associated with a mortgage that has a high risk of default?

1. Prime

2. Standard

3. Sub-prime

4. Secure

The correct answer is: Sub-prime

The term that is commonly associated with a mortgage that carries a high risk of default is "sub-prime." Sub-prime mortgages are offered to borrowers who do not qualify for conventional loans due to their low credit scores or insufficient credit history. These borrowers are considered higher risk, which is reflected in the terms of the loan. Sub-prime mortgages typically come with higher interest rates compared to prime mortgages, compensating lenders for the increased risk of borrower default. In contrast, prime mortgages are issued to borrowers with good credit histories, leading to lower interest rates. Standard mortgages generally refer to conventional loans that meet specific underwriting standards, while secure is a term that might imply collateralized loans but does not specifically denote risk levels related to borrower creditworthiness. Thus, sub-prime is the most accurate descriptor for high-risk mortgage lending practices.