Overview
The choice between a 30-year fixed rate, 15-year fixed rate, and adjustable rate mortgage (ARM) significantly affects monthly payment and therefore what you can afford. Each structure makes different trade-offs between rate, payment, and risk. Understanding which structure is most appropriate for your situation optimizes affordability.
The choice between a 30-year fixed rate, 15-year fixed rate, and adjustable rate mortgage (ARM) significantly affects monthly payment and therefore what you can afford. Each structure makes different trade-offs between rate, payment, and risk. Understanding which structure is most appropriate for your situation optimizes affordability.
What You Need to Know
- 30-year fixed: highest rate but lowest payment -- best for stability and long-term ownership
- 15-year fixed: lower rate (+0.5-0.75% savings vs 30-year) but higher monthly payment -- faster equity
- 5/1 ARM: rate fixed 5 years, then adjusts annually -- lower initial rate, rate risk after 5 years
- 7/1 ARM: fixed 7 years -- appropriate if confident you will sell or refi within 7 years
- Points at closing: paying 1% of loan to buy rate down 0.25% -- evaluate break-even period
Calculate Your Affordability
Use the home affordability calculator with your specific income, debts, and down payment to see your realistic maximum home price range.
Calculate How Much Home You Can Afford
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