Not all home loans are the same. Knowing what kind of loan is most appropriate for your situation prepares you for talking to lenders and getting the best deal.

A loan “option” is always made up of three different things:


The term of your loan is how long you have to repay the loan.

This choice affects:

  • Your monthly principal and interest payment
  • Your interest rate
  • How much interest you will pay over the life of the loan

Compare your loan term options

Shorter term

Longer term

 Higher monthly payments

 Lower monthly payments

 Typically lower interest rates

 Typically higher interest rates

 Lower total cost

 Higher total cost


In general, the longer your loan term, the more interest you will pay. Loans with shorter terms usually have lower interest costs but higher monthly payments than loans with longer terms. But a lot depends on the specifics – exactly how much lower the interest costs and how much higher the monthly payments could be depends on which loan terms you’re looking at as well as the interest rate.

What to know

Shorter terms will generally save you money overall, but have higher monthly payments. 

There are two reasons shorter terms can save you money:

  1. You are borrowing money and paying interest for a shorter amount of time.
  2. The interest rate is usually lower—by as much as a full percentage point.

Rates vary among lenders, especially for shorter terms. Explore rates for different loan terms so you can tell if you’re getting a good deal. Always compare official loan offers, called Loan Estimates, before making your decision.

Some lenders may offer balloon loans. 

Balloon loan monthly payments are low, but you will have to pay a large lump sum when the loan is due. Learn more about balloon loans


Interest rate type


Interest rates come in two basic types: fixed and adjustable.

This choice affects:

  • Whether your interest rate can change
  • Whether your monthly principal and interest payment can change and its amount
  • How much interest you will pay over the life of the loan

Compare your interest rate options

Fixed rate

Adjustable rate

 Lower risk, no surprises

 Higher risk, uncertainty

 Higher interest rate

 Lower interest rate to start

Rate does not change

After initial fixed period, rate can increase or decrease based on the market

Monthly principal and interest payments stay the same

Monthly principal and interest payments can increase or decrease over time

2008–2014: Chosen by 85-90% of buyers
Historically: Chosen by 70-75% of buyers

2008–2014: Chosen by 10-15% of buyers
Historically: Chosen by 25-30% of buyers

What to know


Your monthly payments are more likely to be stable with a fixed-rate loan, so you might prefer this option if you value certainty about your loan costs over the long term. With a fixed-rate loan, your interest rate and monthly principal and interest payment will stay the same. Your total monthly payment can still change—for example, if your property taxes, homeowner’s insurance, or mortgage insurance might go up or down.

Adjustable-rate mortgages (ARMs) offer less predictability but may be cheaper in the short term. You may want to consider this option if, for example, you plan to move again within the initial fixed period of an ARM. In this case, future rate adjustments may not affect you. However, if you end up staying in your house longer than expected, you may end up paying a lot more. In the later years of an ARM, your interest rate changes based on the market, and your monthly principal and interest payment could go up a lot, even double. Learn more

Explore rates for different interest rate types and see for yourself how the initial interest rate on an ARM compares to the rate on a fixed-rate mortgage.