$3,375/mo
15-Year Fixed
Highest payment, but total interest over the life of the loan lands around $207,500, roughly $326,000 less than the 30-year version.
Money Guide
Mortgage Types Explained: Fixed, Adjustable, and More
Most Common30-Yr Fixed
Fastest Payoff15-Yr Fixed
Typical ARM Intro5-7 Yrs
Min Down, FHA3.5%
PMI Drops At20% Equity
ARM Cap Style2/2/5 or 5/2/5
I spent about three weeks going down a mortgage rabbit hole before we refinanced last year, and the thing that stuck with me is how many people pick a loan based on the rate number alone without knowing what they actually signed up for. So okay, here's the version I wish someone had handed me on day one: what each loan type actually does, where the risk sits, and the real payment math behind the choice.
01 · The Lineup
The Main Types You'll Actually Run Into
There are more mortgage flavors than most people realize, but almost every loan you'll be offered falls into one of these buckets.
30-Year Fixed
The default for a reason
360 pmts
How it works: the rate and the principal-and-interest payment never change for the life of the loan. Lowest monthly payment of any fixed option, most total interest paid over time. This is what most buyers end up with, and it's the safest to plan a household budget around.
15-Year Fixed
Same rate, half the timeline
180 pmts
How it works: same fixed-rate concept as the 30-year, compressed. Payment is meaningfully higher, but you build equity fast and cut total interest by a large margin because you're not paying interest for an extra 15 years.
ARM (5/1, 7/1, 10/1)
Fixed for a while, then it floats
variable
How it works: rate is fixed for the first number (5, 7, or 10 years), then adjusts annually based on a benchmark index plus a lender margin. Usually starts below a comparable fixed rate. The tradeoff is uncertainty after the intro period ends.
FHA Loan
Government-insured, low down payment
3.5% down
How it works: insured by the Federal Housing Administration, which is why lenders accept lower credit scores and smaller down payments (3.5% with a 580+ score, 10% with 500-579). The tradeoff is mortgage insurance premiums that, on most FHA loans, stick around for the life of the loan unless you refinance out.
VA Loan
For eligible service members and veterans
0% down
How it works: backed by the Department of Veterans Affairs, no down payment required and no ongoing PMI. There's typically a one-time VA funding fee rolled into the loan, though it's waived for some disabled veterans.
USDA Loan
Rural and some suburban areas
0% down
How it works: backed by USDA Rural Development for eligible low-to-moderate income buyers in qualifying areas, which is a wider map than "rural" suggests. Zero down payment, but income limits and property location both have to check out.
Jumbo Loan
Above the conforming limit
high balance
How it works: any loan above the conforming loan limit set annually by the FHFA (roughly the low $800,000s for most of the country as of the most recent update, higher in expensive metro areas). Can't be sold to Fannie Mae or Freddie Mac, so lenders usually want a stronger credit profile and bigger down payment to offset that.
02 · Mechanics
How an ARM Rate Actually Moves After the Intro Period
The part people skip reading. This is the sequence that determines what your payment looks like in year 6, 8, or 11.
1
Intro period is locked
5, 7, or 10 years at a fixed rate, usually below a comparable fixed-rate loan.
5, 7, or 10 years at a fixed rate, usually below a comparable fixed-rate loan.
2
Index plus margin sets the new rate
At the first adjustment, your rate resets to a benchmark index (like SOFR since LIBOR was phased out) plus a fixed margin your lender sets at closing.
At the first adjustment, your rate resets to a benchmark index (like SOFR since LIBOR was phased out) plus a fixed margin your lender sets at closing.
3
Caps limit how far it can move
A 2/2/5 or 5/2/5 structure limits the first adjustment, each later adjustment, and the total lifetime increase. No caps means no ceiling, so confirm this before you sign.
A 2/2/5 or 5/2/5 structure limits the first adjustment, each later adjustment, and the total lifetime increase. No caps means no ceiling, so confirm this before you sign.
03 · The Real Numbers
15 vs 30 vs ARM on the Same $400,000 Loan
Illustrative example using round assumed rates (6.75% for the 30-year fixed, 6% for the 15-year fixed, 6% intro for the ARM) so you can see the shape of the tradeoff, not a live quote.
$2,594/mo
30-Year Fixed
Lower payment gives more breathing room in the monthly budget, but total interest over 30 years runs around $534,000 on this loan size.
$2,399/mo
5/1 ARM
Lowest payment for the first five years. After that it resets based on the index and margin, capped by the loan's adjustment structure, so the payment could rise from there.
04 · Watch For This
Mistakes People Make Picking a Mortgage Type
Most of these come down to reading the rate and skipping the structure underneath it.
×
Choosing an ARM without checking the cap structure
A 2/2/5 and a loan with no caps at all are not the same product, even if the intro rate looks identical.
A 2/2/5 and a loan with no caps at all are not the same product, even if the intro rate looks identical.
×
Ignoring how long FHA mortgage insurance actually lasts
On most FHA loans with less than 10% down, that premium doesn't go away on its own. Refinancing to conventional later is usually the exit.
On most FHA loans with less than 10% down, that premium doesn't go away on its own. Refinancing to conventional later is usually the exit.
×
Assuming PMI cancels automatically the day you hit 20%
You can request cancellation at 80% loan-to-value, but lenders are only required to remove it automatically at 78%, and only if you're current on payments.
You can request cancellation at 80% loan-to-value, but lenders are only required to remove it automatically at 78%, and only if you're current on payments.
×
Comparing loans on rate alone, ignoring points and fees
A lower rate with more points paid upfront can cost more than a slightly higher no-point rate, depending on how long you actually keep the loan.
A lower rate with more points paid upfront can cost more than a slightly higher no-point rate, depending on how long you actually keep the loan.
×
Picking the 15-year term without stress-testing the payment
The interest savings are real, but only if the higher payment survives a year where the income isn't steady. Model it against your worst realistic month, not your best one.
The interest savings are real, but only if the higher payment survives a year where the income isn't steady. Model it against your worst realistic month, not your best one.
PMI cancellation rules come from the federal Homeowners Protection Act. FHA and VA program details come from HUD and the Department of Veterans Affairs. Conforming loan limits are set annually by the FHFA. See consumerfinance.gov and fhfa.gov for current figures.