Skip to main content

Understanding Mortgage Options

November 5, 2014

Narrowing down mortgage options and selecting the loan that best suits you can be intimidating. Sometimes it’s hard to even know where to start. If you’re on the road to homeownership, here is some information outlining the major types of mortgages that you should know about as you begin exploring options. Equip yourself with the financial knowledge needed to find that new place to call home.

Fixed Rate Mortgages: With this type of mortgage the portion of your payment going toward the principal and interest will stay the same until it is paid off. If you prefer to know exactly how much your monthly payments will be and how much you’ll ultimately pay in interest, this is a good option. You will not have to contend with fluctuating interest rates that could in turn affect your payments. This type of mortgage is also beneficial to those who plan to be in their home for an extended period of time.

Adjustable Rate Mortgages (ARM): If you plan to sell or refinance your home within the first few years, this may be a good option for you. With ARMs, initial interest rates are typically low, but as time goes on, interest rates may change depending on fluctuations in the market. Most ARMs these days offer a rate that is fixed for 5-10 years before it changes. For many buyers, ARMs are a great option, particularly since the average lifespan of most home mortgages is only seven years!

Construction Loans: Are you planning on building your own home or is the home you are looking to buy in need of major renovations? If so, this is a great choice. After construction is completed, generally in 12 months or less, the loan rolls over into a mortgage that you pay over a long period of time. In some instances, a construction loan can even be used to purchase the land for your new home. Construction loans typically require a larger cash down payment compared to other loans, and detailed plans from a general contractor or builder are needed early in the process.

Rehab Financing Programs: This is another option if you are buying a home in need of some minor updates. Often times, buying a home that needs some work is a more affordable option, but you still need to be able to finance those projects. With this option, you can purchase the home and fund the renovations with a single loan.

Federal Housing Administration (FHA) and Veterans Affairs (VA) Mortgage Programs: These government mortgage loans are popular among homebuyers without funds for a down payment or who need a bit of extra help to qualify. FHA loans require borrowers to pay mortgage insurance premiums for the life of the loan. In turn, lower down payments are required, interest rates may be lower and some qualifying guidelines are eased. Qualified veterans, reservists, active duty personnel and certain family members are eligible for VA loans with similar benefits.

MassHousing Programs: There are mortgage options exclusive to Massachusetts residents that offer fixed rates and low down payments. While there are income restrictions involved, MassHousing offers several options for low- to middle-income families, and the income limits are generally higher than one might expect!

These are brief mortgage option snapshots that are intended to get you started. A good lender can walk you through benefits, restrictions and limitations of each mortgage program that is available. When you are ready to take the next step, contact a local bank to discuss options and your specific situation with a lender. With the help of educated professionals and some careful planning, you will be on your way to affording your new home in no time.

Jim Oosterman is the Vice President of Melrose Bank. He can be reached by telephone at 781-665-2500, online at or on Facebook at

« Back to Articles

View More Articles

Discover everything we can offer.