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Best 20-Year Mortgage Rates | January 2023

A 20-year mortgage might be better than a 30-year. Find out why and where to check rates.

Below is SuperMoney's list of top 20-year mortgage lenders. Check rates with multiple mortgage companies to see which one offers the best terms.

How do 20-year mortgages work?

Most homebuyers (about 8 out of every 10) get a mortgage to finance their home. However, finding the right home loan for your needs and budget can be a real challenge.

You can save a lot of money in interest by going with a mortgage that has a shorter term. Typically, mortgages with shorter terms have lower interest rates and you pay interest for shorter periods, which dramatically reduces the cost of the mortgage.

20-year mortgages are -- no surprises here -- designed to be paid off in 20 years if every payment is made as scheduled.

The longer the term of a mortgage, the higher the interest rates and the lower the monthly payments will be. Therefore, 20-year mortgages tend to have higher monthly payments but lower interest rates than 30-year mortgages. As a result, their rates and monthly payments fall between 30-year and 15-year mortgages, the two most popular mortgage terms.

What are the pros and cons of a 20-year mortgage?

Mortgages with 20-year terms are rare, so let's have a look at the main advantages and disadvantages of 20-year mortgages.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider when shopping for 20-year mortgages.

Pros
  • Affordable payments: Mortgages with 20-year terms have lower monthly payments than 15-year mortgages because they stretch out the repayment of the loan.
  • More flexibility:  You have the option of paying the loan faster by making extra payments, but you can stick with the lower payments when necessary.
  • Easier to qualify for them: The lower payments allow more borrowers to meet the eligibility requirements of lenders.
  • Larger tax deductions: It's a thin silver lining, but the higher interest rates of 20-year mortgages -- and the fact most of your payments in the early years go toward paying interest -- do give some borrowers higher tax deductions.
  • Allows you to qualify for more expensive homes: Since the payments are stretched over a longer period, you can borrow more money than if you went with a shorter term.
  • Peace of mind: Knowing what your mortgage payments will be for the next 20 years regardless of what happens to the economy makes it easier to budget.
Cons
  • Takes longer to build equity: Lower monthly payments (and higher interest rates) do make it harder to build equity in your home.
  • Higher interest rates: Longer terms typically have higher interest rates than shorter terms because they present a higher risk to lenders.
  • Tempting to overspend Since you can qualify for larger loan amounts, it is easy to fall into the trap of borrowing more than you can afford.

How much can you save by choosing a 20-year mortgage term?

The savings you can get from a 20-year mortgage when compared to a 30-year mortgage will vary depending on the size of the loan and the interest rates you pay. Let's use a $300K loan with a 3% APR and 30-year term as a benchmark. A loan with the same interest and a 20-year term will save you $56,022 over the life of the mortgage. If you can also lower your interest rate to 2.75%, you could save $64,972 in interest. The table below provides a variety of scenarios to help you see the potential savings of different terms.

Term Total Cost $300K (3% interest rate) Monthly Payments
10 years $347,619 $2,897
15 years $372,914 $2,072
20 years $399,310 $1,664
25 years $426,790 $1,423
30 years $455,332 $1,265
40 years $515,498 $1,074

Mortgages with a 20-year term provide a good alternative to 15-year mortgages for borrowers who want to pay their mortgages faster and save money in interest but can't stretch their budget to make the higher payments required to pay off a 15-year mortgage. With a 20-year term, you are still paying off the loan in 10 years less than a 30-year mortgage, and if you wanted to -- and can afford it -- you could make extra payments and pay it off faster.

How to get the best mortgage lenders for a 20-year fixed mortgage rate

To get the best deal on a 20-year fixed-rate mortgage and get the lowest monthly payments possible, you'll need to get a few things in order.

  • First, get your credit score in the best shape possible. Then, start working on it in the months or even years leading up to buying a house. Ensure your debt utilization is low (under 30%), make your payments on time, maintain a variety of credit types, and check periodically for inaccuracies.
  • Build your savings. Showing you have money saved up in the bank makes you less of a risk as you have a backup system in place to make your payments.
  • Don't change jobs. If you can maintain the same job, it helps to show consistency to lenders, which reduces the level of risk you present.
  • You'll need to shop around. Learn the average mortgage rates in the market and be aware of market conditions. Are rates supposed to go up or down in the near future? If they are going to go up, consider a rate lock. Also, be sure to check with a few reputable lenders to ensure you get a competitive deal.

A little prework can save you a few basis points to a few percentage points, which makes a big difference over the life of the loan.

How do I know if a 20-year mortgage is the best option for me?

There are so many choices to make when shopping for a mortgage it can be overwhelming. The good news is that a little research is all it takes to narrow down your best options.

Are you planning to move in a few years? Do you have the flexibility to deal with increased payments if mortgage rates rise? Is paying off your mortgage as fast as possible a priority for you? Then you may want to consider an adjusted rate mortgage (ARM) or a 15-year fixed-rate mortgage.

However, if you value having greater flexibility, predictable payments, lower monthly payments, and plan to stay put for many years, then a 20-year mortgage may be the best option.

Choosing a 20-year fixed-rate mortgage is a solid choice that is ideal for borrowers who want the peace of mind of knowing they will be able to afford their mortgage payments. 

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SuperMoney
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