Weighing Your Choices When Choosing a Mortgage
With so many different types of mortgages available when purchasing a Lexington, MA home, it can be difficult to know where to start. How do you know which one is right for you and your personal situation? Over my years as a Lexington Area Realtor, I’ve gotten the opportunity to work with clients that have opted for all different types of loans. These are the most common mortgage types that buyers have to chose from today:
Fixed-Rate: This is the most common and standard type of mortgage loan. The terms range from 5 to 50 years, but most often a fixed-rate loan is a 30 year term. When you have a fixed rate mortgage, your interest is completely amortized over the term of the loan. Right now, fixed-rate interest rates are particularly low. As of last week, a 30-year fixed loan rate was as low of 4.19%. The beauty of a fixed-rate payment is that it will remain the same for the entire term of the loan.
Interest-Only: This type of loan is not actually “interest-only”. It just allows for the buyer to make payments in the amount of only the monthly interest for a certain period of time. Typically this type of loan will only allow the borrow to opt to make an interest payment for the first 5 to ten years of the loan, the the full payment including principal must be made for the remainder to the term of the loan. This type of loan can be helpful to first time buyers, as it does allow for a lower payment if one chooses to make an interest-only payment.
FHA: The Federal Housing Administration (FHA) is a devision of the government that insures this type of home loan. By having this government insurance, the lender can require less than a $20% downpayment. Between that and the fact that the credit guidelines are not quite as stringent as a conventional loan, this can be a great option for first time buyers.
Adjustable-Rate: There are many varieties of adjustable-rate mortgages (ARMs). Depending on the type, your rate can change monthly, semi-annually, or annual. Some of these loans are fixed for a specific period of time, commonly 2-5 years, and then adjust for the remaining years of the term.
Combo/Piggyback: Having a combo loan basically means that you have a first and second mortgage. This loan is appealing because it can allow for a smaller downpayment and eliminates the need for private mortgage insurance (PMI). Some of these loans will require 5-10% down, while others will require nothing down.
It’s wise to spend some time doing a bit of research on your mortgage options if you’re considering a home purchase in the Lexington, MA area. Determining which mortgage type is right for you will really depend on your credit and personal needs. If you would like more guidance through the home purchasing process, please contact me. I would love to use my experience in the real estate industry and the Lexington local market to ease your home buying experience.
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