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Types of Mortgages

Types of Mortgages

Purchasing a home can be quite intimidating. Research the many options available to you for financing a home, then you will be able to decide what sort of monthly payments you can comfortably afford now and in the future.

Conventional Mortgage

  • Fixed: Conventional fixed rate loans are one of the most commonly used home financing option. With any fixed rate loan, the interest rate is locked in at the start of the loan, and remains the same throughout the mortgage term, regardless of changes in the market rate. These loans are not guaranteed or insured by a government agency.
  • ARMs: ARMs (Adjustable rate mortgages) have an interest rate that raises or lowers at certain intervals according to an index. An ARM’s initial interest rate is usually starts out lower than a fixed mortgage, and goes up a specific amount above an index at intervals of a specific number of years. For example a “3-1-1” adjustable will go up at the third, fourth and fifth anniversary of the closing. The borrower must pay any increases made to the interest rate during the term of the mortgage. The borrower’s payments will increase when the interest rate increases, or become more affordable as rates fall.

Alternative Mortgages

  • FHA Loans: Federal Housing Administration, an arm of the Department of Housing and Urban Development, was established specifically to assist first time home buyers in home financing, especially those with a low to moderate income. FHA loans are available from most lenders and require only a 3 percent down payment. FHA will work with state and local housing programs that help with down payments and closing costs.
  • VA Loans: Loans sponsored by the U.S. Department of Veteran Affairs, they guarantee loans for eligible veterans, active duty personnel and surviving spouses. They offer competitive rates, lower or no down payments and minimum income requirements.

Think about your financial ability now and in the foreseeable future before choosing your loan to finance your home. Be sure to get an estimate of the payment you will be responsible to pay throughout the life of the loan (including tax and insurance) so you fully understand the monthly commitment.

Other Loan Options to Consider for Financing a Home

  • Balloon Mortgage: A balloon mortgage has a fixed interest rate and fixed monthly payments, however after a certain time period (about 5-7 years), the entire balance of the loan becomes immediately due and payable. This is not a comfortable option, since most people cannot pay the balloon amount; it is a choice of last resort. Borrowers only choose this when they do not qualify for a standard fixed rate or adjustable rate mortgage. Their hope would be to improve their credit rating enough to refinance to a conventional or ARM mortgage before the balloon payment becomes due. This type of loan is risky.
  • 80/20 Mortgage: This type of financing is also known as a Piggyback mortgage or 100% financing. It is actually two (2) separate loans. This type of financing is used because the borrower does not have a 20% down payment. An 80/20 mortgage eliminates the paying of private mortgage insurance. These loans are harder to come by in the newly tightened-up loan environment for home financing.
  • Interest-Only Mortgage: An interest only mortgage is just that, the borrower pays only the interest on the loan, in monthly payments for a fixed term (about 5-7 years). At the end of that term the buyer may refinance, pay the balance, or start paying off the principal, which means a huge increase in the monthly payment. Many home equity loans are structured this way, with the expectation that homeowners will have the ability to pay them off before the end of the fixed term.
  • Negative Amortization Loans: With this type of loan, the monthly payments are less than the interest accruing on the principal amount of the loan. The unpaid interest is added to the principal, thereby creating a “negative amortization”. Get it? You owe more and more every month.
 
 
 

Latest from the Blog

  • Closed Home Sales Down in April After Record Inventory Lows and Rising Prices

    Median Sales Prices Have Seen Year-Over-Year Increases for 19 Straight Months

    WALTHAM, Mass. – May 23, 2017 – The Massachusetts Association of Realtors® (MAR) reported today that low inventory and rising prices caught up to the spring market, with single-family home sales decreasing over eight percent from this time last year. Both single-family and condominium prices saw a hike. Condominium sales decreased almost 10 percent from April 2016.

    April Closed Sales:

    Single-Family April 2017 April 2016 %Change
    Sales 3,735 4,082 -8.5%
    Median Price $362,500 $349,900 +3.6%
    • Closed sales have been down for four out of the last 12 months
    • Median prices have been up or flat for 16 out of the last 17 months
    Condominium April 2017 April 2016 %Change
    Sales 1,455 1,607 -9.5%
    Median Price $345,000 $329,950 +4.6%
    • Closed sales have been down for four out of the last 12 months
    • Median prices have been up or flat for 16 out of the last 17 months

    “With the current trend of plunging inventory and rising prices, the odds were strong that sales increases of the winter market would be unsustainable through the spring,” said 2017 MAR President Paul Yorkis, president of Patriot Real Estate in Medway. “The demand is there; we just need more homes on the market to satisfy that demand.”

    Inventory and Days on Market:

    Single-Family April 2017 April 2016 %Change
    Inventory 13,234 19,392 -31.8%
    Months of Supply 2.7 4.0 -32.5%
    Days on Market 81 107 -24.3%
    New Listings 7,706 8,513 -9.5%
    • 62nd time in the last 63 months of year-over-year inventory decreases
    Condominium April 2017 April 2016 %Change
    Inventory 1,455 1,607 -9.5%
    Months of Supply 2.0 2.8 -28.6%
    Days on Market 60 78 -23.1%
    New Listings 2,640 2,971 -11.1%
    • Inventory down for 16 out of the last 17 months

    “Unfortunately, our existing level of inventory makes it hard for us to meet our current and future housing needs,” said Yorkis. “If we don’t do anything soon, it will have a negative impact on the entire Massachusetts economy.”

    If you are thinking of buying a home anywhere in the state of Massachusetts, it is in your best interest to work with a member of the Massachusetts Association of Buyer Agents. These men and women are dedicated to working exclusively on your behalf to ensure that you have the best possible home-buying experience. Find a MABA agent here.