Types of Mortgages Explained: Fixed, ARM, FHA, VA, and More

Fixed-Rate Mortgages

30-year fixed: The most popular mortgage in the US. Predictable monthly payment, lower payment than shorter terms. Pays more total interest over time. Best for buyers who plan to stay 7+ years and value payment stability.

15-year fixed: Higher monthly payment but significantly lower interest rate (typically 0.5–0.75% lower than 30-year) and pays off in half the time. Total interest cost is roughly 40–50% less than a 30-year. Best for those who can afford higher payments and want to pay off faster.

Adjustable-Rate Mortgages (ARMs)

ARMs offer a lower initial fixed rate for a set period, then adjust annually based on an index (typically SOFR) plus a margin. Common structures: 5/1, 7/1, 10/1 (fixed period/adjustment frequency in years).

Best for: buyers who plan to sell or refinance within the fixed period. Risky for those planning to stay long-term — rate increases can significantly raise payments.

Government-Backed Loans

FHA loans: 3.5% down payment (with 580+ credit score). Requires mortgage insurance premium (MIP) for the life of the loan if under 10% down. Best for first-time buyers with limited down payment or credit below 620.
VA loans: No down payment, no PMI, competitive rates. Exclusive to veterans, active duty, and eligible spouses. One of the best loan products available — use it if eligible.
USDA loans: Zero down payment for rural areas. Income limits apply. Underused program with excellent terms.

Jumbo Loans

Loans exceeding conforming limits ($766,550 in most areas for 2024; higher in high-cost areas). Higher credit score requirements (720+), larger down payments (10–20%), and slightly higher rates. Required in expensive metros for most home purchases.

Frequently Asked Questions

Is a 15-year or 30-year mortgage better?

Depends on priorities. 15-year: less total interest, build equity faster, lower rate. 30-year: lower payment preserves cash flow, more flexibility. If you can invest the payment difference at returns exceeding the mortgage rate, a 30-year can theoretically come out ahead financially. Most financial advisors suggest 15-year for forced savings discipline.

How much does 1 mortgage point cost and is it worth it?

1 point = 1% of loan amount, paid upfront to reduce rate by approximately 0.25%. On a $400,000 loan, 1 point costs $4,000 and saves ~$55/month. Break-even: $4,000 ÷ $55 = 72 months (6 years). Worth it if you stay beyond the break-even point; not worth it if you'll refinance or sell sooner.