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What Is A 20-Year Mortgage, And Should You Consider One?

Sarah Sharkey7-minute read

November 23, 2022

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Shopping around for a mortgage comes with plenty of challenges. One of the first hurdles you’ll need to clear is deciding on the best loan term (how long the money is borrowed) for your situation. One term that’s available in many cases but not as commonly used as some other loan terms is a 20-year mortgage. Up next, we’ll take a deep dive into 20-year mortgages, so you have a clear understanding.

Can You Get A 20-Year Mortgage?

Yes, 20-year home loans are available to those who qualify.

While this isn’t the most popular mortgage term, a 20-year mortgage exists alongside the more prevalent 15-year and 30-year loan terms. Let’s explore exactly what a 20-year mortgage is before taking a closer look at the different types of 20-year home loans as well as the pros and cons of this mortgage option.

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What Is A 20-Year Mortgage?

A 20-year mortgage is a fixed-rate mortgage with a repayment period of 20 years. As with all fixed-rate mortgages, this means the interest rate will remain stable over time and you lock in a regular payment for 20 years. A 20-year loan term isn’t available for adjustable-rate mortgages.

Although 15- and 30-year mortgages are more popular, 20-year mortgages offer a way to enjoy the best of both worlds. A 20-year mortgage lets you spread out the costs over a longer period of time than a 15-year mortgage, which means a lower monthly mortgage payment. Compared to a 30-year mortgage, a 20-year home loan has an abbreviated loan term and therefore gives you the opportunity to save on interest charges over the duration of the loan.

Many buyers find the 20-year mortgage to be a happy medium for their short-term budgeting and long-term financial goals.

20-Year Fixed Mortgage Rates

Various factors go into determining mortgage rates, including the rate of a 20-year mortgage. These factors include the health of the economy, inflation, the Federal Reserve and the bond market. While a borrower can’t control how these variables influence mortgage rates, you can always work on improving the personal factors that help you qualify for a loan.

Even with the state of the economy and your qualifying factors having a role to play, 20-year mortgage rates will likely be lower than 30-year mortgage rates and higher than 15-year mortgage rates.

How To Get The Best Rate On A 20-Year Mortgage

If you decide to go for a 20-year mortgage, you’ll want to get the best mortgage rate possible. The good news is that locking in a 20-year mortgage rate is similar to finding a favorable interest rate for any other type of loan. Start by comparing mortgage lenders and rates and reading customer reviews. You can also take the steps to improve your qualifying factors, like your credit score and debt-to-income ratio (DTI).

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Types Of 20-Year Mortgages

You can find several types of 20-year mortgage options. Here are a few of the most often-used loan types.

FHA 20-Year Mortgage

FHA loans are a great option for those who have a low credit score or minimal savings. To secure an FHA loan, you must have a credit score of 580 or higher and make a down payment of at least 3.5% of the purchase price. However, if you go with an FHA loan, you should also expect to pay a mortgage insurance premium (MIP).

VA 20-Year Mortgage

VA loans are guaranteed by the Department of Veterans Affairs. The goal of these loans is to provide an affordable financing opportunity for eligible veterans and active-duty service members, as well as surviving spouses who meet certain criteria. For you to qualify, lenders typically require a FICO® Score of at least 620. If you meet that requirement, you won’t have to make a down payment or pay for private mortgage insurance (PMI).

Conventional 20-Year Mortgage

The more standard option for a 20-year mortgage is a conventional loan. First-time home buyers can often make a down payment as low as 3% with this loan type; however, most buyers must put at least 5% down.

Keep in mind that if you make a down payment of less than 20%, you’ll have to pay for PMI. To qualify for a 20-year conventional loan, you’ll need a credit score of at least 620 and a DTI of 50% or less.

How 20-Year Mortgages Compare To Other Loan Terms

A 20-year and a 30-year mortgage both offer potential home buyers a relatively long term. With a 20-year mortgage, you can expect a higher monthly payment than with a 30-year home loan – but you’ll pay off your mortgage sooner if you go with a 20-year term.

On the other hand, the lower payment associated with a 30-year mortgage can allow more financial flexibility if life throws unexpected expenses your way. Of course, you can also swing in the other direction with a 15-year mortgage where you’ll have a larger monthly payment but pay off your loan sooner.

Ultimately, a shorter mortgage term will result in a larger monthly payment, and you’ll be able to pay off your mortgage more quickly.

If you can afford a mortgage term shorter than 30 years, a 20-year mortgage might be the right move for you. And if you want some more flexibility in your budget than a 15-year term allows, a 20-year term could provide that wiggle room.

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Pros Of A 20-Year Mortgage

Getting a 20-year mortgage is a good way to balance the tradeoffs of a 30-year and 15-year mortgage. Let’s take a look at what specifically makes a 20-year mortgage advantageous.

Lower Interest Payments Than A 30-Year Mortgage

One of the biggest benefits of 20-year mortgages is that they enable borrowers to make lower interest payments than they would with a 30-year mortgage. Yet, it’s not just the shorter term that enables borrowers to save on interest. Twenty-year mortgage rates are typically lower than 30-year rates.

To see just how much borrowers can save with a 20-year mortgage, let’s consider an example. You want a $350,000 loan to purchase a home. Your lender tells you that they can offer you a 30-year mortgage with an interest rate of 4.99% or a 20-year mortgage with an interest rate of 4.38%.

If you choose the 30-year term, you’ll pay $325,625.40 in total interest. However, if you choose the 20-year term, you’ll only pay $175,774.41 in interest over the life of the loan. Therefore, the 20-year mortgage is ultimately more affordable. By choosing a 20-year over a 30-year term, you save $149,851 in interest.

More Financial Flexibility Than A 15-Year Mortgage

With a 20-year mortgage, it may take longer to build up equity in your home and pay off your loan, but your monthly payments are significantly lower than they’d be with a 15-year term. While some people like the idea of getting rid of debt faster, others believe it’s better to have more financial flexibility.

How much lower would your monthly payments be with a 20-year term compared to a 15-year term? Suppose you’re looking for a $350,000 loan to purchase a home and your lender tells you they can offer you a 20-year mortgage with an interest rate of 4.38% or a 15-year mortgage with an interest rate of 4.25%.

If you choose the 20-year term, your monthly payments would be $2,190.73, but if you select the 15-year term, your payments would jump to $2,632.97 each month. By getting a 20-year mortgage, you enjoy a $442.25 lower payment each month and can choose how to use the funds.

However, with a 20-year mortgage, you can use the savings from your lower monthly payments to build up an emergency fund, invest or pay for daily expenditures.

Cons Of A 20-Year Mortgage

A 20-year mortgage also has some downsides. Let’s review some of the most common disadvantages.

Higher Interest Payments Than A 15-Year Mortgage

Just as you pay more interest with a 30-year term than a 20-year term, you’ll have to make higher interest payments if you select a 20-year mortgage over a 15-year mortgage. Again, the increased amount is a result of making payments for an additional 5 years and having a higher interest rate.

If we return to the previous example used to compare 20-year mortgages with 15-year mortgages, the 20-year mortgage rate is 4.38%, while the 15-year rate is 4.25%. Based on these interest rates, you’d pay $175,744.41 in interest for a 20-year mortgage and $123,935.40 for a 15-year mortgage.

Eventually, the 20-year mortgage would cost you almost $52,000 more than the 15-year mortgage. Therefore, one disadvantage of the 20-year term is that it’s ultimately more expensive than the 15-year term despite allowing for a lower monthly payment.

Less Financial Flexibility Than A 30-Year Mortgage

When choosing a 20-year mortgage, a borrower commits to paying off their loan in 10 years less than they would’ve paid off their loan with a 30-year mortgage. Because their loan term is shorter, their monthly payments are higher.

Let’s return to the example used to examine how interest payments differ between a 30-year mortgage and a 20-year mortgage. If you choose the 30-year term, your rate will be 4.99% and your monthly payments will be $1,876.74. However, with a 20-year mortgage rate of 4.38%, your monthly payments will be $2,190.73.

Therefore, although choosing a 20-year term enables you to save on interest payments in the long run, it’s less affordable in the short term. With a 20-year mortgage, you’ll have less spending money each month, creating less financial flexibility.

Should You Refinance To A 20-Year Mortgage?

A 20-year mortgage is extremely beneficial for anyone who wants to pay off their mortgage more aggressively while still keeping monthly payments relatively low. However, multiple factors can influence whether a refinance is a good decision. Here are some situations where refinancing to a 20-year mortgage could be beneficial:

  • Interest rates have dropped significantly since you purchased your home.
  • You have an adjustable-rate mortgage and can save money by switching to a fixed-rate loan.
  • You have a 30-year term but can now afford to make the higher payments associated with a shorter-term loan.
  • You want to take money out of the equity you’ve built in your home and use it to make home improvements, consolidate debt, etc.

The Bottom Line

A 20-year mortgage is a great compromise if you’re on the fence about which loan term to choose. Obtaining a 20-year mortgage can allow you to save more money on interest than you would with a 30-year term and have lower monthly payments than with a 15-year term.

Yet, for some borrowers, the monthly payments that come with a 20-year term may still be too high to fit into their budget. As with any mortgage term, a 20-year home loan has pros and cons, but it can be a solid option for many home buyers.

Are you interested in a 20-year mortgage or checking out other loan terms? Apply for initial approval and start the mortgage process today.

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Sarah Sharkey

Sarah Sharkey is a personal finance writer who enjoys diving into the details to help readers make savvy financial decisions. She’s covered mortgages, money management, insurance, budgeting, and more. She lives in Florida with her husband and dog. When she's not writing, she's outside exploring the coast. You can connect with her on LinkedIn.