Fixed-rate vs adjustable-rate
Fixed-rate
The interest rate (and your monthly principal + interest payment) stays the same for the entire loan term — typically 15, 20, or 30 years. Predictable and the most common choice for primary residences. 30-year fixed is the US default.
Adjustable-rate (ARM)
The interest rate is fixed for an initial period (commonly 5, 7, or 10 years) and then adjusts periodically based on a benchmark index. ARMs typically start with a lower rate than a comparable fixed-rate loan, but the payment can rise significantly after the initial period.
ARMs make sense if you expect to sell or refinance before the rate adjusts. They're risky if you plan to stay long-term and rates rise.
Down payment
The down payment is the cash you bring to closing as your initial equity in the home. The rest is borrowed from the lender.
- Conventional loans: typically 5–20%. Most lenders prefer 20% to avoid PMI.
- FHA loans: as low as 3.5% with a credit score of 580+. Backed by the Federal Housing Administration.
- VA loans (eligible veterans): 0% down available.
- Jumbo loans (above conforming limit, ~$766K in most counties): typically require 10–25% down.
- Foreign-national loans: 30–40% down typical.
Larger down payments lower your monthly payment, eliminate PMI, and often get you a better interest rate.
Private mortgage insurance (PMI)
When you put less than 20% down on a conventional loan, the lender requires PMI to protect itself against default. PMI is typically 0.3–1.5% of the loan amount per year, added to your monthly payment.
PMI is automatically removed once your loan balance reaches 78% of the original purchase price (assuming you're current on payments). You can also request removal at 80% if you have a strong payment history.
FHA loans have mortgage insurance premiums (MIP) instead of PMI, and MIP can last the entire life of the loan depending on the down payment. Read the fine print.
What goes into your monthly payment
The acronym "PITI" covers the four pieces:
- Principal: the portion that pays down your loan balance.
- Interest: what the lender charges to lend you the money.
- Taxes: property tax, typically collected monthly into an escrow account by the lender and paid annually to the county.
- Insurance: homeowner's insurance (required) plus PMI/MIP if applicable. Also escrowed monthly.
For condos and gated communities, add HOA dues, which are paid separately to the association and can range from $200/mo to $2,500+/mo depending on the building. HOA dues are not escrowed by the lender but you should always budget for them.
Closing costs (lender side)
Lender-side closing costs are separate from your down payment. Typical components:
- Loan origination fee: 0.5–1.5% of the loan amount
- Appraisal: $400–$700
- Credit report: $25–$100
- Title insurance (lender's policy): 0.3–0.6% of the loan amount
- Prepaid interest from closing to month-end
- Escrow setup for taxes and insurance: typically 2–6 months
On top of this you'll also pay state and county-specific closing costs — in Florida, doc stamps on the mortgage (roughly 0.35% of the loan amount), doc stamps on the deed (about 0.7% of the purchase price, usually paid by the seller), and intangible tax (0.2% of the loan amount).
Reading a loan estimate
When you apply for a mortgage, the lender provides a standardized Loan Estimate within 3 business days. The key numbers to compare across lenders:
- APR (not just the interest rate) — bakes in fees and points
- Total cash to close — combines down payment and closing costs
- 5-year and lifetime totals — how much interest you'll pay over time
Get loan estimates from at least 2–3 lenders to compare. Small APR differences add up to thousands over the life of the loan.
Estimate your monthly payment
Use our mortgage calculator on the homepage to estimate your monthly principal and interest payment for different prices, down payments, and terms.
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This guide is educational and not financial or legal advice. Mortgage products, rates, and rules change frequently. Always work with a licensed loan officer and read your final closing disclosure before signing.