Types of Mortgages Explained: Fixed vs. FHA, VA, ARM & Interest-Only

Lenders sell a dozen flavors of the same thing: money now, repaid with interest. The differences come down to three questions — how long is the rate locked, who eats the risk, and what’s hidden in the fine print. Here is each major type, and why its rate sits where it does. (This week’s averages: 30-year fixed 7.28%, 15-year fixed 6.6% — see current NYC rates.)

The loan types at a glance

Every one of these can be tried live in the mortgage calculator — pick the loan type from the dropdown and the payment, chart, and schedule recompute for that product.

Fixed-rate mortgages (30, 20, 15, 10 years)

One rate, locked for the life of the loan; every payment identical. The rule behind the pricing: the longer a lender’s money is locked up, the more risk they carry — inflation, rising rates, you refinancing away — so longer terms cost more. A 15-year runs roughly half a point below a 30-year (6.6% vs 7.28% this week). You pay for the 30-year’s low monthly payment twice: a higher rate and twice as many years of interest. The 15-year flips the trade — higher payment, far less total interest.

FHA loans: the sticker-price trick

FHA loans are insured by the federal government and aimed at buyers with small down payments (3.5%) or weaker credit. Because the insurance removes the lender’s default risk, the advertised rate looks fantastic — often a full point below conventional. The catch is the mortgage insurance premium: 1.75% up front plus roughly 0.5% per year, usually for the life of the loan. That is why an FHA APR runs far above its rate — the APR is the honest number. NYC caveat: co-ops are generally not FHA-eligible, and condos require the whole building to be FHA-approved, so in practice FHA works mostly for houses here.

VA loans

For veterans, active military, and some surviving spouses. Government-guaranteed like FHA, so they price below conventional — but with no monthly mortgage insurance (a one-time funding fee instead), which is why a VA loan’s rate and APR sit close together. Zero down payment is allowed. If you qualify, it is usually the best pricing on the board.

Adjustable-rate mortgages (ARMs)

A 5-year ARM is fixed for 5 years, then adjusts (typically every 6 months) to a market index plus a margin, with caps on each move. The intro rate beats a 30-year fixed because the lender only guarantees it for a few years — less risk for them, a discount for you, and the gamble of year 6 is yours. Two quirks worth knowing: 3-year ARMs often price above the 30-year fixed — almost no lender offers them, so the few quotes are uncompetitive — and an ARM’s APR can sit below its rate, because APR projects the post-intro years using today’s index; when markets expect rates to fall, the projection drags the APR down. That is a forecast, not a promise.

Why ARMs feel “commercial”: in commercial real estate, floating or short-term rates are the norm — lenders keeping loans on their own books won’t eat 30 years of rate risk. The American 30-year fixed home loan only exists because Fannie Mae and Freddie Mac buy and securitize those loans, passing the risk to bond investors. Loans too big to sell to them — jumbos, common in NYC — stay on bank balance sheets, which is why banks push ARMs hardest at NYC price points. Most other countries’ home loans are adjustable too; the U.S. 30-year fixed is the global exception.

Interest-only mortgages

A common structure is 10 years of interest-only payments, then the loan amortizes as a 20-year fixed. The early payment is much lower — on a $400,000 loan at 6%, about $2,000/month instead of $2,398 — but you build no equity from payments during the interest-only years, and the payment jumps when amortization starts. Try it on the mortgage calculator, which models the 10/20 structure and shows both payments.

Commercial mortgages

For mixed-use and income property, the loan is underwritten on the building’s income (the debt-service coverage ratio), not just the borrower’s — and the structure follows the commercial norm: a 5–10 year term with payments amortized over ~25 years, so a large balance remains due (or gets refinanced) when the term ends. Expect 25–35% down, no PMI, and rates above residential averages. In NYC this is how small multifamily and store-plus-apartments buildings are typically financed.

Rate vs. APR in one line

Rate is what your payment is computed from. APR adds the fees, points, and mortgage insurance, spread over the loan — the honest comparison number. A big gap between the two means a lot of cost is hiding outside the rate (see: FHA). Paying points to buy the rate down? The points calculator finds your break-even month.

Which one is right for you?

• Staying 10+ years, want certainty: 30-year fixed (or 15-year if the payment fits).
• Likely to sell or refinance within ~7 years: a 5- or 7-year ARM’s discount is real money.
• Small down payment, buying a house: compare FHA’s APR (not its rate) against a low-down conventional loan.
• Eligible veteran: VA, almost always.
• Maximizing cash flow now, comfortable with the jump: interest-only — with eyes open.

Frequently asked questions

Figures computed from official NYC Department of Finance and NYC Open Data records, refreshed automatically — see how BlockBook sources its data. Spot an error? Tell us.

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Informational only — not financial, legal, or tax advice. See the disclaimer.