What is a 20-year mortgage?
This mortgage option is not as popular, but it can save you money
If you have started shopping for a home, you are likely familiar with 15- and 30-year mortgage options. However, there's another choice that you might have yet to consider: the 20-year mortgage. This middle-of-the-road option could be the perfect compromise for those wanting to save on interest while keeping monthly payments manageable.
Like its 15- and 30-year counterparts, a 20-year mortgage has its own advantages and trade-offs.
Key insights
- Lenders might offer 20-year mortgages, but you will need to check if the rate savings is significant enough to be worth it.
- A 20-year mortgage can save you money on the interest of your mortgage versus a 30-year mortgage.
- A 20-year mortgage could help you build equity faster since more money is going toward your principal with each payment.
Can you get a 20-year mortgage?
A 20-year mortgage, as the name suggests, allows you to pay off your home in 20 years. Depending on your lender, this type of mortgage can have more attractive interest rates than a 30-year mortgage, but expect the monthly payments to be higher since you are repaying the loan in a shorter period.
Many lenders will allow this type of mortgage option, but you might need to ask for it when comparing rates. Remember, you want to compare the 20-year mortgage rate and estimated monthly payment with both the 15- and 30-year options to make sure it is truly the most affordable for your budget.
20-year vs. 30-year mortgage: What’s the difference?
As far as mortgage requirements and the process of entering into the mortgage agreement go, a 20-year mortgage will be very similar to a 30-year mortgage.
The biggest difference you will see between the two is that the 20-year mortgage will have a higher monthly payment, but you will pay less in interest over the life of the loan. Depending on your lender and the current rates, a 20-year mortgage could also have more attractive rates.
» MORE: 20-year vs. 30-year mortgage: Which is best for you?
What are the current 20-year mortgage rates?
Your 20-year mortgage rate will vary depending on your lender, creditworthiness and down payment. Buyers applying for a 20-year FHA or VA loan might have access to better rates than the national average.
To give you a rough idea of what rates to expect when shopping for a 20-year mortgage, we used US Bank’s rate calculator. We assumed a FICO score of 740 or more and a 25% down payment on a home that cost $464,000 in Maine.
At the time of publishing and based on these criteria, the annual percentage rate (APR) for a 20-year fixed-rate conventional mortgage through US Bank was approximately 6.342%. This was 0.335% lower than what US Bank was offering for a 30-year mortgage for buyers meeting the same criteria.
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Should you refinance to a 20-year mortgage?
If you are currently locked into a 15- or 30-year mortgage and wondering if refinancing to a 20-year mortgage would be a better option, consider the following:
- Can you get a better interest rate?
- Do you want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage?
- Do you want to take advantage of built-up equity for home improvements, debt consolidation and more?
- Are you struggling to afford the monthly payments of a 10- or 15-year mortgage?
If you answered yes to at least one of the questions above, refinancing to a 20-year mortgage might be a good move for you.
However, if you are hoping to pay off your 30-year mortgage faster, it might be smarter to pay more toward the principal each month than to go through the process of refinancing.
Pros and cons of a 20-year mortgage
A 20-year mortgage means you will be on your way to being mortgage-free faster, but it can also tie up your monthly budget more than a 30-year mortgage will.
Consider these pros and cons of a 20-year mortgage before committing to it.
Pros
- Own your home faster
- Pay less interest over time
- Build equity quicker
Cons
- Higher monthly payments
- Less affordability
- Less money for other investments
FAQ
Where can I get a 20-year mortgage?
Most banks, credit unions and online lenders offer 20-year mortgages. Shop around and compare rates and terms from different lenders before making a decision.
Can I make extra payments on a 30-year mortgage to pay it off in 20 years?
Yes, paying extra each month toward your principal for your 30-year mortgage can result in early payoff and savings on interest.
Who should consider a 20-year mortgage?
A 20-year mortgage could be a good fit for those who can comfortably afford the higher monthly payments and want to save on interest and own their home sooner.
Bottom line
If you can comfortably afford the higher monthly payments and want to pay off your home faster, a 20-year mortgage could be a great fit.
However, you could also pay extra each month toward your principal on a 30-year mortgage and still get an early payoff and savings on interest. This strategy allows you to pay off your mortgage faster on your terms without being stretched too thin to meet a higher monthly payment.
