A 20-year mortgage is a loan to finance a home that is repaid with a fixed rate over 20 years. Mortgages with shorter repayment terms typically have lower rates than mortgages with longer repayment terms, as there is less risk to the lender.
Although rates will be less than a 30-year mortgage, your payment will likely be higher. However, if you’re able to afford a higher payment, you’ll benefit from paying less interest over the life of the loan, and you’ll pay off your mortgage 10 years sooner.
The best 20-year mortgages come with low APRs and are available to people with a variety of credit scores.
The Best 20-Year Mortgage Rates Today
|The Best 20-Year Mortgage Rates Today|
|Type of Loan||Purchase||Refinance|
|Compare Today's Best Fixed-Rate Conventional Mortgage Rates|
|Jumbo 30-Year Fixed||4.57%||4.65%|
|Jumbo 15-Year Fixed||4.57%||4.65%|
A 20-year mortgage can be a great option for people who want to benefit from slightly lower rates than a 30-year mortgage and can afford a larger payment. It’s also good for people who want to refinance a 30-year mortgage they’ve had for a few years in order to get a better rate. This is because 20-year mortgage rates are typically lower than 30-year mortgage rates.
If you’ve had a 30-year mortgage with a higher interest rate for a few years and refinance it into a 20-year mortgage, your payment might not even increase. Plus, if you’ve had your existing loan for less than 10 years, you’ll pay off the balance quicker than you would have with your original 30-year loan. This can translate into additional interest savings.
Frequently Asked Questions (FAQs)
Who should consider a 20-Year mortgage?
A 20-year mortgage is a great option for people who want to pay off their home loan sooner and can comfortably afford a payment higher than what would be required for a 30-year mortgage. It can also be good for people with an existing mortgage because they might be able to refinance and reduce their rate and term without a corresponding increase to their monthly payment.
The above example is based on a $300,000 mortgage and estimated APRs ranging from 2.633% for a 20-year mortgage to 2.750% for a 30-year mortgage. With a 30-year mortgage, your monthly principal and interest (P&I) payment would be relatively low, at $1,224.72. The monthly payment would increase by almost $400 with a 20-year mortgage to $1,609.22.
However, the total interest of $86,212.37 you would pay for a 20-year mortgage is significantly less than the total interest of $140,900.48 you would pay for a 30-year mortgage.
|Comparing 20-Year and 30-Year Mortgages|
|20-Year Mortgage||30-Year Mortgage|
|Monthly Payment (Principal & Interest)||$1,609.22||$1,224.72|
|Total Mortgage Interest||$86,212.37||$140,900.48|
To compare 20-year and 30-year mortgages with your own loan amount and other details, use our mortgage calculator.
What are the benefits of a 20-year mortgage?
There are three primary benefits of a 20-year mortgage when compared to a 30-year mortgage: you’ll pay less interest over the life of the loan, you’ll pay down the principal balance of your loan more quickly, and you’ll usually receive a slightly lower rate.
With a 20-year mortgage, you’ll pay interest for 10 fewer years than if you opt for a 30-year mortgage. Plus, you’ll pay down the principal balance quicker with a 20-year mortgage, since it has a shorter repayment term than a 30-year mortgage. Both of these factors translate into savings in the total amount of interest you’ll pay on your loan.
The rates on 20-year mortgages are typically less than 30-year mortgages because shorter-term mortgages are less risky to lenders. As a result, lenders can charge lower interest rates on shorter-term mortgages, meaning you’ll pay less interest if you opt for a shorter repayment term.
To demonstrate the potential savings you’ll receive on a 20-year mortgage versus a 30-year mortgage, let’s look at an example. For this example, we’ll compare the amount of interest you’ll pay on a $200,000 mortgage for the first five years and also how much you’ll pay over the entire repayment term for both types of mortgages. We’ll also look at the balance of each type of mortgage after five years.
The difference in interest paid and the loan balance after five years for a 20-year mortgage versus a 30-year mortgage is as follows (note that APRs are estimated assuming you have good credit):
|Comparing Interest Paid With 20-Year and 30-Year Mortgages|
|20-Year Mortgage||30-Year Mortgage|
|Loan Balance After Five Years||$159,391.31||$176,991.79|
|Interest Paid in First Five Years||$23,760.04||$25,980.74|
|Total Interest Paid||$57,474.91||$93,933.65|
Are there different types of 20-year mortgages?
While you don’t hear about 20-year mortgages as often as other repayment terms, there are a variety of types you can get. As with a 15-year or 30-year fixed-rate mortgage, you can get conventional mortgages as well as FHA-insured loans and VA-insured loans with fixed rates for 20 years from many lenders.
Conventional, FHA, and VA loans work pretty much the same with a 20-year fixed-rate as they do with fixed rates for 15 or 30 years. The primary difference is that your debt-to-income ratio (DTI) will be calculated using the payment for a 20-year term versus a shorter 15-year term (a higher payment) or a longer 30-year term (a lower payment).
As such, since the monthly payment is lower, it takes less income to qualify for a 20-year mortgage than it does for a 15-year mortgage. Conversely, it takes more income to qualify for a 20-year mortgage than it does for a 30-year mortgage as the monthly payment is higher. Keep in mind that most lenders require a DTI of 36% to 43% to qualify for a mortgage, and sometimes up to 50%.
Do different mortgage types have different rates?
Most types of mortgages present different levels of risk to lenders, which are reflected in the interest rate that borrowers receive. Mortgages with a lower level of risk will usually have a lower interest rate. In contrast, higher-risk mortgages will carry a higher interest rate.
For example, shorter-term fixed-rate mortgages (e.g., 15-year mortgages) are considered lower risk than longer-term fixed-rate mortgages (e.g., 30-year mortgages). As such, generally speaking, the shorter the term, the lower the rate.
Adjustable-rate mortgages also typically have lower interest rates than fixed-rate mortgages. One of the reasons is because lenders have a lower level of interest rate risk since the term is shorter. As a result, the rate on an ARM is typically less than the rate on a fixed-rate mortgage. Although ARMs are less risky for lenders, they’re potentially riskier for borrowers (especially in a rising interest-rate environment). So, make sure to approach ARMs with caution.
As another example, you’ll often pay a little more for a jumbo mortgage than you will for a conforming loan or a government-insured loan from the FHA or USDA. This is because there is generally more risk associated with jumbo loans. Notably, the difference in rates between jumbo and non-jumbo mortgages is often small and may be non-existent if you have a large down payment (up to 40%) or other compensating factors (e.g., excellent credit).
How does my credit score affect my mortgage rate?
Among the biggest factors that affect mortgage rates is the applicant’s credit score. This is because interest rates are set, in part, based on a lender’s evaluation of the riskiness of the applicant. Applicants with better credit scores are typically seen as being less risky than applicants with worse credit scores. As such, mortgage rates for credit scores that are higher are expected to be less than mortgage rates for lower credit scores, up to 1.5% or more.
Since mortgage rates are greatly affected by credit scores, one of the best things you can do to get a better rate is to work on improving your credit score. Some of the things you can do to improve your credit score are to pay your bills on time, make sure your credit cards aren’t maxed out, and avoid getting other types of new credit.
Keep in mind, the amount of time it will take to improve your credit score will depend on your credit issues. For example, if you’ve recently filed for bankruptcy it may take you longer to fix your credit than if you simply have a couple of high credit card balances.
Is a 20-year mortgage a good option for refinancing?
A 20-year mortgage can be a good option for people who want to refinance an existing 30-year mortgage in order to get a better interest rate. This is because, in addition to getting a better rate and shortening your repayment term, you might even be able to reduce your monthly principal and interest payments. Plus, you might end up paying off your mortgage sooner than expected.
To put this in perspective, let’s say you have an existing 30-year mortgage that you’ve been paying on for five years. The original balance was $300,000, you have a fixed interest rate of 5.5%, your monthly payment is $1,703.37, and your current balance of $277,382. In our example, you’re able to get a 20-year mortgage for your current balance at a rate of 2.633%.
In this scenario, you’ll end up paying off your loan five years sooner than originally expected (a shorter term of 10 years minus the five years you’ve already paid equals five fewer years of payments). Plus, your monthly payment will be reduced to $1,487.89—a savings of over $200 a month!
Here is an example of how your payment might be reduced if you refinance out of a 30-year mortgage into a 20-year mortgage:
|Refinancing a 30-Year Mortgage Into a 20-Year Mortgage|
|Original 30-Year Mortgage||New 20-Year Mortgage|
|Original Loan Amount||$300,000||N/A|
|Balance After 5 Years||$277,382||N/A|
|Refinanced Loan Amount||N/A||$277,382|
How We Found the Best 20-Year Mortgage Rates Today
To find the best 20-year mortgage rates we first created a profile borrower. Our borrower has a credit score of 700 to 760 and the property has a loan-to-value ratio (LTV) of 80% (which avoids PMI). Next, we averaged the lowest rates offered by more than 200 of the nation’s top lenders. These rates are representative of what real consumers will see when shopping for a mortgage.
Note that mortgage rates change daily and this data is intended to be for informational purposes only. A person’s personal credit and income profile will be the deciding factors in what loan rates and terms they are able to get. Loan rates do not include amounts for taxes or insurance premiums and individual lender terms will apply.