|Fixed Rate Loans||Adjustable mortgages (ARMs)||FHA loans||VA loans|
|Best for||Borrowers who prefer stable payments that won't change||Borrowers who might sell after 5 years, or are comfortable knowing their payments can change||Borrowers with smaller down payments or lower credit scores||Only available for qualifying Veterans, active military, and military families|
|Length of term||Typically last for 10 - 40 years||Typically last for 30 years||Typically last for 10 - 40 years||Typically last for 10 - 40 years|
|Interest rate||Fixed rate for the life of a loan||Fixed rate for 3, 5, 7, or 10 years, then can change every year thereafter||Borrowers can choose a fixed or adjustable rate||Borrowers can choose a fixed or adjustable rate|
|Monthly payment||Amount never changes||Can change after the fixed period ends||Can change only for an adjustable rate mortgage||Can change only for an adjustable rate mortgage|
|Mortgage insurance||Typically required if down payment is less than 20%||Typically required if down payment is less than 20%||Mortgage insurance is required (upfront free and monthly insurance payment)||Not required|
|Additional details||30-year fixed is the most common mortgage type||After fixed period ends, interest rate changes annually based on the index value at that time||Insured by the Federal Housing Administration (FHA)||Insured by the US Department of Veterans Affairs (VA)|
If a low credit score is contributing to your high payments, you can take steps to increase it. First, review your credit report and address any red flags or errors. Then, stop applying for new credit, work to reduce your debt, and be sure to make all of your payments on time.
A higher down payment will reduce the amount of money you borrow, leading to lower monthly payments. It can help you qualify for a lower interest rate, which can also lower your monthly payments. In some cases, it can help you avoid paying costly PMI.
If you can’t make a bigger down payment, you can opt to pay extra towards your principal every month. While this won’t immediately lower your monthly mortgage payment, it can help your mortgage payments decrease later and help you pay off the loan faster
A longer loan term will spread the cost over a longer period of time, which will lower your monthly mortgage payments. This will lead to more interest paid over the life of your loan, but it’s a good strategy to help make homeownership more affordable.
For most conventional loans, you’re required to pay for private mortgage insurance (PMI) along with your monthly mortgage payment until your loan-to-value (LTV) reaches 78-80%. You can avoid this additional monthly cost by putting 20% down on your home.
If you have to pay PMI on a conventional loan, instead of paying it every month along with your mortgage payment, you can opt to pay for it upfront as a one-time fee. This won’t lessen the overall cost of PMI, but it will cut down the amount you pay every month.
If you’re open to living with roommates and you have the space, renting out a bedroom in your home or even a basement apartment if you have it is a great way to reduce your overall monthly payment by having the rental income offset your monthly costs.
If you want to immediately lower your payments, bi-weekly payments likely won’t help. But if you want to pay your loan off faster, stop paying PMI faster, or simply pay less interest over the life of your loan, this approach could make a lot of sense for you.
Everyone knows that the lower the interest rate you get for your loan, the lower your monthly payment will be. But if you don’t have the credit score or other criteria to qualify for the lowest rate, consider buying discount points to get a lower rate, and a lower payment.