Fixed-rate vs. adjustable-rate (ARM)
A fixed-rate mortgage locks your interest rate for the life of the loan — predictable, and the standard choice if you plan to stay put or want certainty. An ARM typically offers a lower introductory rate for a set period (e.g., 5 or 7 years), then adjusts periodically based on a market index.
Points: paying upfront to lower your rate
A "point" costs 1% of the loan amount upfront in exchange for a lower interest rate, usually around 0.25% per point. Whether it's worth it depends on how long you'll hold the loan — there's a break-even point where the upfront cost is recovered through lower monthly payments. Shorter expected time in the home generally argues against paying points.
PMI: the cost of a smaller down payment
Private mortgage insurance is typically required when your down payment is below 20% of the home's value. It protects the lender, not you, and is usually removable once you reach roughly 20% equity — but only if you request removal; many loans don't cancel it automatically until well past that threshold.
Comparing loan offers properly
| Compare this | Not just this |
|---|---|
| APR (includes fees) | Interest rate alone |
| Total closing costs | Monthly payment alone |
| Lock period and terms | The advertised teaser rate |