Mortgage Rates Advice & Articles
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The 20-Year Fixed Rate Mortgage

April 09, 2013

While 30-year and 15-year terms are the most common, they don’t work perfectly for all people. The payment on the 15-year loan is higher than some folks would like, while the interest on the 30-year mortgage is more than they want to pay. If you’re looking for a compromise, you might find it in the 20-year fixed rate mortgage.

What Is It?

The 20-year fixed rate mortgage, as its name suggests, is repaid (amortized) over a 20-year term. Part of your monthly payment covers the previous month’s interest charge, and what’s left is used to reduce your mortgage balance. With every payment, less is needed for interest and more goes to paying off your loan until your balance is zero.

The “fixed rate” protects you from interest rate increases – your rate won’t change over the life of the loan.

What’s Great About It?

The 20-year loan splits the difference between the 15 and 30-year programs. Your rate should fall somewhere between the two, and so should your payment and your total interest expense.

What’s Not Great About It?

It’s a compromise. You’ll pay less than you would with a 30-year mortgage, but more than you would with a 15-year home loan. In addition, 20-year loans are more difficult to find and shop for than 15- or 30-year mortgages, so you’ll need to look harder and compare more carefully. Finally, your rate won’t automatically be reduced if market rates go down. You’d have to pay for a refinance to get a lower rate.

The table below shows the difference between the payment and total expense for 15, 20 and 30-year loans, assuming a four percent rate for the 30-year mortgage, a 3.5 percent rate for a 15-year loan, and a 3.75 percent rate for a 20-year program.

Years Financed 15 20 30
Interest Rate 3.50% 3.75% 4.00%
Monthly Payment $739.69 $605.98 $477.42
Total Interest Paid $33,144 $45,435 $71,870

Who Is it For?

The 20-year fixed rate home loan is the right mortgage for people who can’t comfortably swing a 15-year payment, but would like a lower rate than they could get with a 30-year mortgage.

How Do You Get One?

Finding 20-year loans is more difficult than finding 15-or 30-year mortgages. Shopping online can make it easier to contact more lenders and compare quotes for 20-year home loans.

The chart below shows a range of requirements for 20-year mortgages – conventional, community and government products.

Down Payment Debt-to-income Ratio Minimum FICO Loan Category
5-20% 36% 620-700 Conventional Loans
3% 41% 600-660 Community Loans
0-10% 45% 500-580 Government Loans
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