Homebuyers and lenders sometimes overlook 20-year mortgages. These are less popular than 15- and 30-year mortgages. However, a 20-year mortgage term can provide some advantages for borrowers. For one, it offers a middle ground between the more common loan terms. You save money on interest compared to a 30-year mortgage, but your monthly payments will be lower than with a 15- or 10-year loan.
If you're shopping for a mortgage, take a look at today's 20-year mortgage rates below before making a decision.
For today, September 28th, 2021, the current average mortgage rate for a 30-year fixed-rate mortgage is 3.120%, the average rate for a 15-year fixed-rate mortgage is 2.370%, and the average rate for a 5/1 adjustable-rate mortgage (ARM) is 3.029%. Rates are quoted as annual percentage rate (APR) for new purchase.
|Product||Interest Rate||Average Points/Credits|
|Fixed 30 Year||3.120%||0.112|
|Fixed 20 Year||2.731%||-0.008|
|Fixed 15 Year||2.370%||-0.006|
|Fixed 30 Year - FHA||3.155%||0.046|
|Fixed 30 Year - VA||2.954%||0.212|
|Fixed 30 Year - Jumbo||3.097%||0.060|
|Fixed 30 Year||3.161%||0.363|
|Fixed 20 Year||2.833%||0.190|
|Fixed 15 Year||2.402%||0.092|
|Fixed 30 Year - FHA||3.072%||0.576|
|Fixed 30 Year - VA||2.776%||0.494|
|Fixed 30 Year - Jumbo||3.088%||-0.028|
A 20-year fixed-rate mortgage is an amortized loan that will be paid back fully during that period. Your lender will calculate the principal and interest each month to ensure you're paying back the entirety of your loan. Your monthly payments remain the same.
Your interest rate also remains the same throughout your 20-year term. In many cases, these types of mortgages have lower interest rates than 30-year mortgages. However, they have slightly higher rates than 15-year home loans.
Initially, the majority of each monthly payment will go toward interest. Over time, more will go toward the principal (the amount you actually borrowed).
When comparing mortgages, make sure they all have the same loan term so you can see which one truly offers the best mortgage rates. Also consider a variety of mortgage lenders. These include both local and national banks and credit unions, as well as online lenders. In some cases, seeking the help of a mortgage broker could pay off. Some may offer very competitive rates.
Since applying for a loan might result in a ding to your credit score, find lenders that offer mortgage prequalification. This only involves a "soft" credit inquiry. It won't affect your credit score. When you receive a few quotes, take a look at items such as any loan origination fees, interest rates, closing costs, and mortgage points. (Mortgage points allow you to pay more up front to reduce your interest rate.) Don't forget to look at what you may need to qualify for the best rates. These include a high FICO® Score, a minimum income amount, and a history of on-time payments.
A 20-year mortgage offers borrowers the chance to pay off their loan faster than the popular 30-year term. They also charge less interest. And while a 15- or 10-year mortgage could save you even more in interest, you may not be willing or able to make their higher monthly payments. Think about the opportunity cost of a larger payment. For example, you might have to cut back on putting money aside for retirement savings.
Paying off your mortgage faster than 30 years is a worthy goal. Be sure to evaluate your financial situation first to see if that's feasible. Many lenders may require a higher credit score and a lower debt-to-income ratio because of the higher monthly payment.
In other words, take a look at your household income and cash flow (your budget) to see if you can afford a higher monthly mortgage payment. Remember to budget for other housing expenses such as homeowner's insurance.
As long as you can meet the minimum payment requirements, you should be good to go. For homeowners who want to pay off their mortgage faster, there's always the option of making extra payments. Check to make sure your lender doesn't charge a prepayment penalty. That way, you can simply put extra money toward your mortgage when you're able.
For more on 20-year mortgages, check out our guide on 20-year mortgages vs 30-year mortgages to decide which is right for you.
Getting pre-approved for a mortgage loan is an important step in the home buying process. Our experts recommend mortgage pre-approval before you begin looking at houses or deciding on a real estate agent.
A 20-year fixed-rate mortgage is an amortized loan that will be paid back fully during that period.
You should compare and shop around with a variety of mortgage lenders to find the most competitive rates offered.
A 20-year mortgage may be a good option if you're looking to pay off your mortgage faster and pay lest interest A 20-year mortgage may be a good option.
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