Searching for the best 20 year fixed mortgage rates? loanDepot offers a variety of low fixed mortgage programs to help you meet your financial objectives. Our professional loan experts are here to guide you to a successful home purchase or refinance transaction.
What is a 20 year fixed rate mortgage?
The 20 year fixed mortgage is a simple loan program, just like it’s much more popular relative the 30 year fixed. This fixed rate mortgage is a home loan with an interest rate that remains the same throughout the 20 year term. At the end of the 20 year repayment period, the loan is fully amortized. This means that the total principal (the face value of the loan) has been paid off in full in multiple installments. This kind of mortgage can be especially beneficial to those borrowers who prefer to forgo 30 year mortgage, but find the 15 year term too high of a monthly payment. In this type of mortgage, the borrower not only pays less interest over time, but typically obtains a lower interest rate than with a traditional 30 year mortgage.
What is the difference between a fixed rate and adjustable rate mortgage?
Deciding between a fixed rate and an adjustable rate mortgage (ARM) is an important consideration when shopping for a mortgage. So what is the difference between these two types of mortgage and how do they influence you?
A fixed rate mortgage is exactly as it sounds – it is a loan where the interest rate is set for a specific term, typically between ten to thirty years. Your total monthly payment of principal and interest will stay the same for the entire term of the loan. Many borrowers choose this type of mortgage mainly because it provides them the certainty of a consistent mortgage payment each month.
On the other hand, an adjustable rate mortgage is a loan that offers you only a short introductory period with a low, fixed interest rate. After that period expires, usually two to ten years, your rate resets to reflect current market rates, up to a certain limit.
A key factor when choosing between these two types of loans is recognizing how long you plan to live in your home. If you intend on staying in the home for just a few short years before selling, then an adjustable rate loan could be your best bet. The teaser interest rate in an ARM will be lower than a fixed rate mortgage. However, keep in mind that if rates rise at the end of your introductory period you risk a rate adjustment, which could result in a payment increase in the future.
If the thought of a sudden rate increase in the future makes you cringe, then the certainty of a stable monthly mortgage payment with a fixed term loan will be more suitable to your needs. A fixed rate mortgage offers you consistency that can help make it easier to set a budget.
Who may benefit from a 20 year fixed mortgage vs. different term?
When most borrowers consider a mortgage, they are typically faced with two fixed options: 30 year or a 15 year loan. But what if you could take a portion of the best of both worlds? For those who don’t want to spend the next 30 years paying down the mortgage, but cannot afford the higher payments associated with at 15 year loan, the 20 year term may be an ideal solution.
Most people don’t realize about the existence of this middle of the road alternative when shopping for a home loan. The 20 year mortgage combines the best attributes of both the 30 year mortgage and 15 year mortgage. For starters, the monthly payments of a 20 year mortgage are more affordable than a 15 year option. As an example, with a $300,000 balance at an interest rate of 5 percent, a 30 year mortgage payment would be $1,610 per month, a 20 year mortgage payment would be $1,980 per month, and a 15 year payment would be $2,372 per month. This makes the 20 year mortgage $392 cheaper than a 15 year mortgage and only $370 more expensive than a 30 year mortgage.
Bottom line, when evaluating your various fixed mortgage options, a mortgage with a shorter term will be paid off sooner and accrue less interest over the life of the loan, making it the best deal of the pack. However, as mentioned earlier, the 20 year mortgage may be the next best option if you are unable to sustain a higher monthly payment that comes with a 15 year term.
All things considered, the 20 year mortgage is undoubtedly easier to manage on a monthly basis than a 15 year mortgage and takes away the major disadvantages of a 30 year mortgage. It not only comes with a shorter amortization period, but also a smaller total dollar amount of interest paid.
At a glance: why choose a 20 year fixed over 30 year fixed?
Own home quicker
Lower interest rate
Build equity faster
Save on interest
Higher monthly payment
Risk strains to your budget
Will qualify for a lower loan amount
May find savings less tangible
After evaluating all the pros and cons, does saving money on interest and paying off your mortgage faster than a traditional term still sounds good? If so, let’s take a look at an example:
Comparing a $300,000 fixed rate mortgage for 20 years at 5.25% (APR 5.349%) and a mortgage for 30 years at 5.375% (APR 5.443%), you get the following results (not including homeowner’s insurance, property taxes or private mortgage insurance):
As illustrated above, you will have saved roughly $119,600 ($604,768 less $485,167) in total interest by opting in for a 20 year fixed mortgage. The best way to determine whether refinancing to a 20 year term makes sense is to meet with a licensed loan consultant. They will be able to study your finances, help determine your housing goals and calculate which loan type makes the most sense for you.*
What is the benefit of refinancing from a longer term to a 20 year fixed?
Our lives and the economy change dramatically over the course of 30 years, and what you need from your mortgage today might be vastly different than it was when you first purchased or refinanced your home. So how do you determine whether it is in your favor to refinance your current mortgage to a 20 year term?
One of the reasons you might want to consider refinancing your mortgage to a shorter 20 year fixed term is to expedite the payoff of your home. Perhaps your income and credit score are higher than when you first purchased and now you qualify for a better rate? If you originally took out a 30 year mortgage and have twenty years left today, it could be beneficial to refinance, especially if the 20 year term offers a lower interest rate than your original note.
To learn whether refinancing to a 20 year term makes financial sense to your circumstances, speak with a qualified lending professional today. If you could obtain a lower interest rate, and the lifetime savings in interest outweigh any refinance costs, then a refinance could set you on an accelerated path to becoming mortgage-free.
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* The above example is for illustration purposes only and uses the following scenario to compare a 30 year fixed and a 20 year fixed rate loan. Rate assumes a $300,000 loan amount, 80%LTV with a credit score of 740+. Loan limits may apply.
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