Choosing a mortgage type is one of the most consequential financial decisions in a home purchase. The headline interest rate tells only part of the story. The true cost of each loan type includes insurance premiums, rate adjustment risk, and how long you plan to stay in the home. This comparison models a $400,000 purchase with 10% down ($40,000) across three common loan structures in 2026.
The Three Loan Types Compared
30-year fixed-rate conventional loan locks in your interest rate and monthly payment for the full loan term. It is the most popular mortgage in the United States, accounting for the majority of purchase originations in most years. With a 10% down payment, PMI is required until you reach 20% equity.
5/1 ARM (adjustable-rate mortgage) offers a fixed rate for the first five years, then adjusts annually based on a benchmark index (typically SOFR) plus a lender margin. ARMs generally start with a lower rate than 30-year fixed loans, making them attractive for buyers who plan to sell or refinance before the first adjustment.
FHA loan is insured by the Federal Housing Administration. It allows down payments as low as 3.5% with a 580+ credit score and is more accessible to borrowers with limited credit history. The trade-off is mortgage insurance premium (MIP) -- both an upfront premium (1.75% of the loan amount) and an ongoing annual premium (typically 0.55% for loans with 10% down and terms over 15 years). MIP is required for the life of the loan when down payment is below 10%.
Scenario: $400,000 Purchase, 10% Down, 2026 Rates
Loan amount: $360,000. Estimated 2026 rates based on Freddie Mac PMMS and MBA survey data:
- 30-year fixed: ~6.87% rate | PMI ~$135/mo until 20% equity (~8.5 years)
- 5/1 ARM: ~6.10% initial rate | PMI ~$135/mo | Adjusts after year 5
- FHA (30-year): ~6.50% rate | Upfront MIP $6,300 | Annual MIP ~$165/mo for life of loan
Monthly Payment Comparison (Years 1--5)
- 30-year fixed: $2,369 P&I + $135 PMI = $2,504/mo total
- 5/1 ARM: $2,192 P&I + $135 PMI = $2,327/mo total
- FHA: $2,276 P&I + $165 MIP = $2,441/mo total (plus $6,300 upfront MIP)
Total Interest and Insurance Paid Over 7 Years
Seven years is a commonly cited average homeownership duration before sale or refinance:
- 30-year fixed: ~$165,100 interest + ~$13,770 PMI (cancels at ~yr 8.5) = ~$178,870
- 5/1 ARM: ~$144,400 interest + ~$11,340 PMI + rate adjustment risk after yr 5
- FHA: ~$157,800 interest + $6,300 upfront MIP + ~$13,860 ongoing MIP = ~$177,960
The ARM Trade-Off: Rate Risk After Year 5
The 5/1 ARM's lower initial rate translates to meaningful monthly savings in the first five years -- roughly $177/month versus the 30-year fixed in this scenario, or about $10,600 over five years. The risk is what happens at adjustment. Most 5/1 ARMs have a 2% annual cap and a 5% lifetime cap over the initial rate. If the index rises, your rate could increase from 6.10% to as high as 8.10% at first adjustment and up to 11.10% at the lifetime cap.
Buyers who are confident they will sell or refinance within five years benefit most from the ARM. Those who expect to stay longer face meaningful rate risk that could erode the early savings and then some.
FHA vs Conventional: The PMI vs MIP Trade-Off
FHA MIP is more expensive than conventional PMI in most scenarios for borrowers with 10% down, and the key structural difference is duration: conventional PMI cancels once you reach 20% equity, while FHA MIP at 10% down persists for 11 years. For a 30-year FHA loan with less than 10% down, MIP lasts the full loan term.
FHA makes the most sense for borrowers who cannot qualify for conventional financing -- typically those with credit scores below 680 or DTI ratios above 43% -- or who need the lower down payment floor of 3.5% vs. 3% conventional. For borrowers who qualify for both, conventional financing with PMI is often cheaper over a five-plus year horizon.
Which Loan Type Is Right for You?
Use this decision framework:
- Choose 30-year fixed if you plan to stay long-term, prioritize payment certainty, and qualify for conventional financing.
- Choose ARM if you are confident you will sell or refinance within the fixed period and want to maximize early savings.
- Choose FHA if your credit score is below 680, your DTI is elevated, or you need to minimize the down payment below what conventional programs require.
Use our Mortgage Calculator and Loan Comparison Calculator to model these scenarios with your actual numbers.
Source: Freddie Mac Primary Mortgage Market Survey (PMMS), June 2026; Mortgage Bankers Association Weekly Applications Survey; U.S. Department of Housing and Urban Development (HUD) FHA Single Family Housing Policy Handbook; Fannie Mae Selling Guide; Federal Housing Finance Agency (FHFA) 2026 Conforming Loan Limits.