What Loan Terms Are Available on a Conventional Loan?
Conventional loans offer more term flexibility than almost any other mortgage type. From a 10-year fixed to a 30-year ARM, here is what is available and how to match the right term to your goals.
Fixed-rate conventional loans
Fixed-rate mortgages lock your interest rate for the full loan term. Principal and interest never change. Available terms:
- 30-year fixed: Most popular. Lower monthly payment, more interest paid over time. Best for buyers who want payment stability and plan to stay long-term.
- 20-year fixed: Middle ground — lower payment than 15-year, less interest than 30-year.
- 15-year fixed: Higher monthly payment but significantly less total interest paid, and typically a slightly lower rate than the 30-year. Popular for refinancers and equity-builders.
- 10-year fixed: Highest monthly payment; lowest total interest cost. Used primarily by refinancers with short remaining terms.
Adjustable-rate mortgages (ARMs)
ARMs offer a fixed rate for an initial period, then adjust periodically based on the 30-day average SOFR index plus a 2.75% margin. Available conventional ARM structures:
- 10/6 ARM: Fixed for 10 years, then adjusts every 6 months. Caps: 5/1/5.
- 7/6 ARM: Fixed for 7 years, adjusts every 6 months. Caps: 5/1/5.
- 5/6 ARM: Fixed for 5 years, adjusts every 6 months. Caps: 2/1/5. Not eligible for investors with multiple financed investment properties.
For ARMs with a 5-year or shorter initial period, the qualifying rate is the greater of the fully indexed rate or the note rate plus 2%.
Temporary buydowns
A 2-1 buydown reduces your rate by 2% in year one and 1% in year two, then returns to the full note rate. Buydown funds must be provided by the seller or real estate agent — the borrower cannot fund their own buydown. Borrowers are always qualified at the full note rate, not the reduced rate.
Term comparison on one loan (illustrative example, not a quote)
This example uses a $400,000 loan and two assumed rates chosen only to illustrate the math: 6.5% on a 30-year loan and 5.75% on a 15-year loan.
| Term | Assumed rate | Monthly P&I | Total interest |
|---|---|---|---|
| 30-year fixed | 6.5% | about $2,528 | about $510,000 |
| 15-year fixed | 5.75% | about $3,322 | about $198,000 |
The 15-year payment is about $794 higher each month, and the total interest is roughly $312,000 lower. These are not quotes. The point is the shape of the trade: the shorter term demands cash flow now and saves a lot over time.
How ARM caps work
The caps listed above are written as three numbers. The first is how much the rate can change at the first adjustment, the second is how much it can change at each later adjustment, and the third is the lifetime limit above the starting rate.
For example, on a 5/6 ARM with 2/1/5 caps and a hypothetical 6.0% starting rate, the first reset cannot exceed 8.0%. Each later six-month adjustment can move the rate by 1 point at most, and the rate can never exceed 11.0%. A 7/6 or 10/6 ARM with 5/1/5 caps allows a wider first move: from 6.0%, up to 11.0%, which is also the lifetime ceiling. The cap that matters most is the lifetime cap, since that is the payment you must be able to cover in the worst case.
Picking a term
- Expect to stay 10+ years and want a stable payment: a 30-year fixed is the usual starting point.
- Your income is strong and you want to be debt-free sooner: consider a 15- or 20-year fixed.
- You will likely sell or refinance within the fixed period: an ARM may fit, but check the worst-case payment.
Frequently asked questions
Can I make 15-year payments on a 30-year loan?
You can pay extra on any conventional loan without penalty, so a 30-year loan with extra principal gives you flexibility. The 15-year loan itself carries its own rate.
Is the qualifying payment different for an ARM?
For ARMs with a 5-year or shorter initial period, the qualifying rate is higher than the note rate, as described above, so qualifying can be harder than the starting payment suggests.
Can I change my term later?
Yes, through a refinance. Weigh the closing costs of a refinance against the savings.
Related guides
Key takeaways
- Fixed-rate terms available: 10, 15, 20, and 30 years — the 30-year is most common.
- ARM options: 5/6, 7/6, and 10/6 SOFR ARMs — rate fixed for initial period, then adjusts.
- ARMs with a 5-year or shorter initial period qualify at the greater of fully indexed rate or note rate +2%.
- 2-1 buydowns are available — funded by seller or agent only, not the borrower.
- Borrowers are always qualified at the full note rate, not the buydown rate.
- 5/6 ARMs are not eligible for investors with multiple financed investment properties.
- A 15-year loan costs more each month but far less interest over the life of the loan.
- Caps limit how much an ARM rate can rise at the first adjustment, each period, and over the life of the loan.
- Match the term to how long you expect to own, then confirm you can afford the worst-case payment.
Ready to explore your conventional loan options? Lendia can walk you through what you qualify for and find the right program for your goals.