Understanding Mortgage Types

30-Year Fixed-Rate Mortgage

The 30-year fixed-rate mortgage is the most popular loan in America, chosen by roughly 90% of home buyers. Your interest rate and monthly principal and interest payment (principal is the portion that pays down what you owe, and interest is the fee the bank charges for lending you the money) remain the same for the entire 30-year term, providing maximum predictability for budgeting.

The primary advantage is stability. You know exactly what your mortgage payment will be for the next three decades, regardless of what happens in the economy or interest rate markets. This makes financial planning straightforward and protects you from rate increases.

The trade-off is that 30-year rates are typically 0.5% to 1% higher than 15-year rates, and you pay significantly more interest over the life of the loan. On a $400,000 mortgage at 6.5%, you would pay roughly $510,000 in total interest — more than the loan itself.

15-Year Fixed-Rate Mortgage

A 15-year fixed mortgage offers a lower interest rate (typically 0.5% to 0.75% less than a 30-year) and builds equity (the portion of your home you truly own) much faster. On a $400,000 mortgage at 6%, you would pay approximately $215,000 in total interest, less than half what you would pay on a 30-year term.

The downside is significantly higher monthly payments. The same $400,000 loan would cost roughly $3,375/month versus $2,398/month on a 30-year, a difference of nearly $1,000 per month. This reduces your flexibility and may affect your ability to qualify based on DTI ratios (debt-to-income ratio — the percentage of your monthly income that goes toward paying debts; lenders use this to decide if you can handle the payments).

ARM (Adjustable-Rate Mortgage)

An ARM (Adjustable-Rate Mortgage — a loan where the interest rate can change over time) offers a fixed rate for an initial period (commonly 5, 7, or 10 years), after which the rate adjusts periodically based on a market index plus a margin. A 5/1 ARM means the rate is fixed for 5 years, then adjusts once per year. A 7/1 ARM is fixed for 7 years, and so on.

ARMs typically offer lower initial rates than comparable fixed-rate mortgages, saving money during the fixed period. They make financial sense if you plan to sell or refinance (replace your current loan with a new one, usually to get a better rate) before the adjustment period begins. Most ARMs include rate caps limiting how much the rate can increase at each adjustment and over the life of the loan.

The risk is that rates could rise significantly after the fixed period, potentially increasing your payment by hundreds of dollars per month. If you cannot sell or refinance, you could be stuck with an unaffordable payment. ARMs are best for borrowers with a clear exit strategy.

FHA Loans

FHA loans are insured by the Federal Housing Administration (a government agency that makes homeownership more accessible by backing loans for people with lower credit scores or smaller down payments). They are designed for borrowers who may not qualify for conventional loans. They require as little as 3.5% down (that's $17,500 on a $500,000 home) with a credit score of 580 or higher (10% down with scores of 500-579). They are more forgiving of credit issues, past bankruptcies, and higher debt-to-income ratios.

The catch is that FHA loans require mortgage insurance (an extra fee that protects the lender if you stop paying) for the entire life of the loan (unless you put 10% or more down, in which case MIP — Mortgage Insurance Premium, the FHA's version of PMI — drops off after 11 years). This includes an upfront premium of 1.75% of the loan amount (that's $6,125 on a $350,000 loan, which is usually rolled into the loan) and an annual premium of 0.55% to 1.05%. On a $350,000 loan, that adds roughly $160 to $306 per month to your payment.

VA Loans

VA loans (backed by the Department of Veterans Affairs) are available to eligible veterans, active-duty service members, and some surviving spouses. They offer some of the most favorable terms available: zero down payment, no PMI (Private Mortgage Insurance), competitive rates, and limited closing costs.

VA loans do charge a one-time funding fee (1.25% to 3.3% of the loan amount, depending on service history and down payment), which can be financed into the loan. Some disabled veterans are exempt from this fee. VA loans also have no maximum loan amount for borrowers with full entitlement, though lenders may have their own limits.

USDA Loans

USDA loans are backed by the U.S. Department of Agriculture and are designed for low-to-moderate income buyers in eligible rural and suburban areas. Like VA loans, they offer 100% financing (the loan covers the entire purchase price) with no down payment required.

Income limits apply (generally 115% of the area median income), and the property must be in a USDA-eligible area. Many suburban areas outside major cities qualify. USDA loans charge an upfront guarantee fee of 1% and an annual fee of 0.35%, which is lower than FHA mortgage insurance.

Jumbo Loans

Jumbo loans exceed the conforming loan limits (the maximum loan amount that government-backed agencies will guarantee) set by the Federal Housing Finance Agency. In 2026, the conforming limit for most areas is $766,550, and up to $1,149,825 in high-cost areas. Any mortgage above these limits is considered a jumbo loan and carries stricter requirements because the lender takes on more risk.

Jumbo loans typically require higher credit scores (700+), larger down payments (10-20%), and lower debt-to-income ratios. Interest rates may be slightly higher than conforming loans, and lenders often require larger cash reserves. They are common in expensive markets like San Francisco, New York, and Los Angeles.