Although a 20-year fixed-rate mortgage is a less common choice for a home loan than a 15- or 30-year mortgage, it has some advantages to consider when buying a house. A 20-year mortgage is a home loan you take out that you repay over a 20-year period. It also has a fixed interest rate just like 15- and 30-year mortgages do.
In a rising interest rate environment, a 20-year mortgage has some benefits over a 30-year mortgage. Since it’s a shorter loan term you will end up paying a full decade less in interest, which adds up to tens of thousands of dollars in savings.
Here’s everything you need to know about what a 20-year mortgage is, how they work and how to find the lowest mortgage rates possible.
What is a 20-year mortgage?
A 20-year mortgage works the same way as 15- and 30-year mortgages, it just has a 20-year term instead. You’ll still need to meet all the same criteria and qualify with a lender or bank to be approved for this home loan type.
Comparing a 20-year and 30-year fixed rate mortgage
How does a 20-year home loan stack up to a 30-year mortgage? A 20-year term has the benefit of simply being paid off in a shorter amount of time. You’ll have a higher monthly payment for two decades, but save yourself 10 years of interest on your loan.
Comparing a 20-year and 15-year fixed rate mortgage
While similar to a 15-year mortgage, with a 20-year mortgage, you’ll have lower monthly payments, but pay five additional years in interest. What length mortgage you choose will depend in part on how high of a payment you can afford. A 20-year mortgage may be a good compromise if you can’t afford the monthly payment for a 15-year mortgage, but don’t want to stretch your loan terms out to 30 years.
No matter what term length you choose for a mortgage, it’s important to do your research and interview numerous lenders before committing to one. This will help you find the lowest rate and fees available for your personal financial situation. The more lenders you talk to, the greater your chances of finding a lower rate. Even half a percentage point can make a big difference in the amount of interest you pay over the life of your mortgage.
20-year fixed mortgage trends
Twenty-year fixed-rate mortgage rates are at 6.38%, according to Bankrate, CNET’s sister site. Mortgage rates are near their highest levels in 20 years after consistently climbing since January of last year, when rates were still historically low and closer to 3%.
Depending on what happens with inflation, mortgage rates may remain relatively flat or they could keep increasing. The Federal Reserve raised rates seven times in 2022 to combat stubborn inflation and issued its first rate hike of the year in early February, signaling that rates will continue increase in 2023 but at a slower pace. So if you’re looking for a new home, it could make sense to buy now, rather than waiting.
You can use CNET’s mortgage calculator to figure out how much a difference in interest rates will cost you for your mortgage.
Current mortgage and refinance rates
We use information collected by Bankrate to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country.
Pros of a 20-year fixed-rate mortgage
Here are some key benefits a 20-year home loan offers over standard 30-year fixed-rate mortgages:
- Save money on interest: You will save thousands of dollars in interest over the life of your loan compared to a 30-year mortgage.
- Pay off loan faster: You will pay off your mortgage 10 years earlier than the most common type of mortgage, which is a 30-year fixed-rate mortgage, as well as building up equity in your home faster.
Cons of a 20-year fixed-rate mortgage
And here are some reasons why a 20-year mortgage may not make as much sense as a 30-year home loan.
- Higher monthly payments: You have to be able to afford the monthly payments on a 20-year mortgage, which will be higher than a 30-year mortgage and may eat into your monthly budget.
How do you qualify for a 20-year fixed-rate mortgage?
You apply for a 20-year mortgage the same way you do for other types of mortgages. You must qualify with a lender or bank who is willing to lend you the money. The lender will take into account almost every aspect of your financial life to determine whether or not you can pay back the loan — you’ll submit financial documents like tax returns and pay stubs to apply for a home loan.
Information like your credit score, your income, how much debt you’re carrying and your loan-to-value ratio all affect the rate a lender will offer you.
Other mortgage tools and resources
You can use CNET’s mortgage calculator to help you determine how much house you can afford. CNET’s mortgage calculator takes into account things like your monthly income, expenses and debt payments to give you an idea of what you can manage financially. Your mortgage rate will depend in part on those income factors, as well as your credit score and the ZIP code where you’re looking to buy a house.
