What Is a Mortgage? Types of Mortgages, and When to Get One

What a mortgage is

A mortgage is a loan secured by real estate: you borrow money to buy a home, and the home itself is the collateral — if payments stop, the lender can foreclose and take the property to recover what's owed. Most mortgage payments bundle four things, often abbreviated PITI: Principal, Interest, Taxes, and Insurance. See our Mortgage Calculator to break down what each piece costs on a specific loan.

Main types of mortgages

Fixed-rate mortgage: the interest rate is locked for the entire term (commonly 15 or 30 years). Your principal-and-interest payment never changes, which makes budgeting simple — you're trading potential savings from falling rates for certainty against rising ones.

Adjustable-rate mortgage (ARM): starts with a fixed rate for an initial period (e.g. 5 or 7 years), then adjusts periodically based on a market index. ARMs often start with a lower rate than a comparable fixed loan, in exchange for rate risk later in the loan's life.

FHA loan: backed by the Federal Housing Administration, designed to make homeownership reachable with a lower down payment (as low as 3.5%) and more lenient credit requirements, in exchange for mandatory mortgage insurance. Model one with our FHA Calculator.

Conventional loan: not backed by a government agency — typically requires stronger credit and a larger down payment than FHA, but avoids FHA's mandatory mortgage insurance once you have enough equity.

When it makes sense to get one

A few questions matter more than "what's the current rate":

• How long will you stay? Closing costs (often 2-5% of the loan) take time to earn back through savings vs. renting. If you're likely to move in 2-3 years, that math changes.
• What can you put down? A larger down payment lowers your loan amount, your monthly payment, and — below 20% down on most conventional loans — removes the need for private mortgage insurance.
• Is the payment comfortable at today's rate, not just approvable? Lenders qualify you for the maximum you can borrow, not necessarily the maximum you should. Run your own numbers with our Affordability Calculator before assuming the approved amount is the right amount.
• Does refinancing later change the calculation? If rates are elevated now, some buyers proceed anyway on the assumption they can refinance if rates drop — see our Refinance Calculator to check whether that trade-off actually pencils out for a given rate gap.

There's no universal answer — the right mortgage, and the right time, depends on your down payment, how long you'll hold the property, and how rates compare to your other options, not a single rule of thumb.