20- vs 30-Year Mortgage: Which Is Best for You?

When it comes to getting a mortgage, you have options. You could get a 30-year loan, a 20-year loan, or a 15-year loan. But a 15-year loan will mean taking on much higher monthly payments. So if you're on a tighter budget, your choice may be limited to a 20- vs 30-year mortgage, as opposed to a 15- vs 30-year mortgage. Here, we'll help you decide which mortgage term is right for you.

Pros and cons of a 20-year mortgage

There are plenty of good reasons to take out a 20-year mortgage:

• You'll save money on lifetime interest compared to a 30-year loan. Because you'll pay your 20-year mortgage off in 10 fewer years, you'll spend a lot less money on interest. You can use a mortgage calculator to see how much savings you'll reap. That figure will be based on what current 20-year-mortgage rates and 30-year-mortgage rates look like.
• You'll pay off your home mortgage sooner, thereby freeing up money for other expenses or financial goals. For example, once you're done paying off your home, you may find that you're able to travel more or start a business.

On the other hand, there are drawbacks to getting a 20-year mortgage:

• You'll spend more money each month on your mortgage payment, which could leave you with little room in your budget for other living costs. On top of your actual mortgage payment, there are other expenses of homeownership you'll have to cover, like property taxes, insurance, and maintenance. Taking on too high a mortgage payment could leave you cash-strapped. If you're new to mortgage loans, you may want to read our beginner's guide to home loans.
• You'll have less money left over each month to meet other important financial goals, like saving for retirement.

Pros and cons of a 30-year mortgage

Taking out a 30-year mortgage can work to your benefit:

• You'll spend less each month on your mortgage payment, which means you'll have more money left over for other things. The result? Less penny pinching and less stress.
• You'll free up money for other important goals. With a lower monthly payment, you'll be able to meet other objectives without having to put them off.
• You also have more options when it comes to loan types. FHA, for example, only offers 15- and 30-year terms.

But there are disadvantages to a 30-year loan:

• You'll spend more money on mortgage interest in the course of repaying your home loan. Say you take out a $400,000 mortgage. With a 30-year term, and an interest rate of 7.5%, you'll end up paying a total of $607,716 in interest. But with a 20-year mortgage and the same interest rate, you'll have a shorter repayment window, and spend $373,486 on interest instead. That's a $234,230 difference.
• It'll take longer to pay off your home. Having that debt hanging over your head could be stressful in its own right.

20- vs. 30-year mortgage: What's best for you?

If you're deciding between a 20- and 30-year mortgage, there are no right or wrong answers. You'll want to check with the best mortgage lenders for current rates and programs before you make a final decision, but you should also ask yourself:

• How much room do I have in my budget to spend on housing? If you can afford a higher monthly payment, a 20-year loan term could make sense. If you need ideas for working with a budget, check out our guide to creating a homeowners' budget.
• Does having a limited cash flow stress me out? Even if you can technically swing a higher payment with a 20-year mortgage, if being forced to spend extra on a monthly basis will be a source of anguish for you, then it could pay to stick to a 30-year loan and keep your payments lower.
• Am I a good saver? If you're not great at saving money, then a 20-year mortgage could be a means of forced savings for you, so to speak. Of course, this strategy could backfire if you're not good at managing your money -- if you fall behind on your mortgage payments because they're higher, you could risk losing your home.

If you like the idea of getting a 20-year mortgage but are worried about committing to the higher monthly payment, there's another solution you might consider. Instead of getting a 20-year fixed mortgage, you could instead take out a 30-year loan but aim to make an extra payment or two on your mortgage every year. In doing so, you'll knock out your loan balance a lot sooner and also save money on interest.

You could also decide to take out a 30-year mortgage, but put any extra money into that loan to pay it off faster and spend less on interest. For example, if you pump your tax refund and the cash gifts you generally receive for the holidays into your mortgage, you can pay it off sooner and lower the amount of total interest you pay. But you won't have to deal with the pressure of being locked into a 20-year loan and a higher monthly payment.

Finally, remember that if you get a 20-year mortgage and you find that it's hard to manage the payments, you can always refinance to a 30-year mortgage. And vice versa -- if your income increases a year or so after signing your mortgage, you can refinance to a loan with a shorter term. There are different options to play around with as a mortgage borrower. So rest assured that if you wind up changing your mind after signing a loan, you're not necessarily stuck with it.