How US mortgages work

In the US, home loans are called mortgages. The most common is the 30-year fixed-rate mortgage, where your monthly payment stays the same for 30 years.

Current rates (2025): 30-year fixed rates are typically 6.5%–7.5% depending on your credit score and the lender.

The real cost: PMI

If your down payment is less than 20% of the home price, you'll likely pay PMI (Private Mortgage Insurance) — usually 0.5%–1.5% of the loan amount per year, added to your monthly payment.

On a $400,000 loan, PMI could add $167–$500/month until you reach 20% equity.

15-year vs 30-year

  • 30-year mortgage: Lower monthly payment, much more total interest
  • 15-year mortgage: Higher payment (~40% more), roughly half the total interest

On a $400,000 loan at 7%:

  • 30 years: ~$2,661/month, ~$558,000 total interest
  • 15 years: ~$3,595/month, ~$247,000 total interest

The 15-year saves $311,000 in interest but costs $934 more per month.

Points and closing costs

You can pay "discount points" upfront (1 point = 1% of loan amount) to get a lower rate. Each point typically lowers your rate by 0.25%. This only makes sense if you plan to stay in the home long-term.