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Western Mass Mortgage Guide: 4 Types

There are many mortgage options for home buyers in Western Mass, so many Western Mass mortgages, in fact that it can be difficult to know which type of loan is best for you.  If you're unsure of the kind of loan to apply for, keep reading to learn more about the four main types of mortgages.

Adjustable Rate Mortgages (ARMS) are currently hot topics in the media.  The unpredictable nature of ARMS makes them a high risk type of loan.  While the payments and interest rates can be relatively low compared to other mortgages, as interest rates change, your payments can go up dramatically.  As an example, Northampton or other homeowners who purchased ARMS with low interest rates years ago have experienced tremendous increases to their required payments as interest rates rise.  Some are defaulting on their loans, unable to afford increased payments. 

Fixed Rate Mortgages are the most popular type, since they provide a stable monthly payment and protection from rising interest rates.  You lock in an interest rate at the start of the loan and make the same monthly payment for the entire duration of the loan.  This can be advantageous if interest rates rise, since your rate will not change, but if rates decrease, you are still required to pay your original rate.  If you don't want to take risks and plan to live in your home for at least eight years, this is the mortgage for you. 

Balloon Mortgages initially act like short-term, fixed rate mortgages and are good for buyers planning to stay only a few years in their home.  After a pre-specified period of time (five to ten years), the mortgages "balloon" and you either have to pay the remaining amount or refinance the loan.  On the upside, from the beginning you know the monthly payment amounts and the lump sum required at the end; and, sometimes the short-term fixed interest rates and monthly payments are more affordable than regular fixed rate mortgages.  If you plan to move within the period of the fixed interest rates, you'll avoid the balloon.  The downside is that once the loan balloons, you'll probably have to refinance and interest rates are not predictable.

The government offers two types of mortgage loans that can be acquired from most lenders: Federal Housing Administration (FHA) loans and Veterans Administration (VA) loans.  These loans are insured by the government and, as compared to other loans, generally result in smaller down payments.  While only veterans are eligible for VA loans, anyone can apply for a FHA Loan.  The cons of government loans are that only certain lower-priced homes are approved for the loans and there are extra steps involved to receive the loan.

Now that you know more about some of the different home loan options, you can find the right one for you! Your Western Mass realtor can help guide you to reputable mortgage lenders in your area.