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 you should 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.
As interest rates rise, a 20-year mortgage has some benefits over a 30-year mortgage. Because it’s a shorter loan term, you’ll 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.
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 6.75% as of April 12, 2023, 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 rates
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 7.22% | 7.27% |
| 15-year fixed-rate | 6.66% | 6.74% |
| 30-year fixed-rate jumbo | 7.33% | 7.38% |
| 30-year fixed-rate FHA | 7.30% | 7.35% |
| 5/1 ARM | 6.50% | 7.81% |
| 5/1 ARM jumbo | 6.53% | 7.74% |
| 7/1 ARM | 6.63% | 7.89% |
| 10/1 ARM | 6.90% | 7.96% |
| 15-year fixed-rate jumbo | 6.91% | 6.98% |
| 20-year fixed-rate | 7.03% | 7.08% |
| 30-year fixed-rate VA | 7.38% | 7.42% |
| 7/1 ARM jumbo | 6.71% | 7.80% |
| 15-year fixed-rate refinance | 6.66% | 6.74% |
| 30-year fixed-rate refinance | 7.19% | 7.24% |
| 5/1 ARM refinance | 6.44% | 7.75% |
| 7/1 ARM refinance | 6.67% | 7.84% |
| 10/1 ARM refinance | 6.88% | 7.95% |
| 30-year fixed-rate jumbo refinance | 7.36% | 7.41% |
| 15-year fixed-rate jumbo refinance | 6.99% | 7.06% |
| 5/1 ARM jumbo refinance | 6.45% | 7.73% |
| 30-year fixed-rate FHA refinance | 7.28% | 7.33% |
| 20-year fixed-rate refinance | 7.04% | 7.09% |
| 30-year fixed-rate VA refinance | 7.75% | 7.78% |
| 7/1 ARM jumbo refinance | 6.64% | 7.74% |
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 to qualify for a 20-year mortgage
You apply for a 20-year mortgage as you would 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.
- Income: As with any mortgage, you have to have a high enough income to qualify. You’ll need to have a higher income to be approved for a 20-year mortgage than a 30-year mortgage because your monthly payments will be higher.
- Credit score: Your credit score is one of the main factors a lender will take into consideration when approving you for a mortgage. The higher your credit score, the lower rates you can qualify for, saving yourself tens of thousands of dollars over the lifetime of your loan.
- Other factors: You’ll need to submit financial documents such as tax returns and pay stubs to apply for a home loan. In addition to your credit score and your income, the bank or lender will also take into account how much debt you’re carrying and your loan-to-value ratio.
Alternatives to 20-year mortgages
- 20-year mortgage vs. 30-year 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.
- 20-year mortgage vs. 15-year 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.
- Government-backed loan: If you can’t afford a 20-year mortgage term, there are programs that help first-time homebuyers or lower income buyers purchase a home such as an FHA loan, which can require a down payment as small as 3.5% for qualified applicants. You might also consider a specialized loan such as a VA loan, which are available to active or retired members of the military and their spouses, and require no down payment.
FAQs
Any rate at or below the national average rate for a 20-year mortgage is typically considered a good rate. As of April 12, 2023, the average 20-year mortgage rate is 6.75%, according to CNET’s sister site Bankrate.
If you can afford the higher monthly payments necessary to pay off your mortgage in 20 years, then you could benefit from the shorter loan term because you’ll pay less interest than a 30-year mortgage, the most common term.
Your specific monthly payment will vary depending on your personal financial factors, but you can use CNET’s mortgage calculator to determine how you’ll save taking out a 20-year mortgage compared with a different loan term.
If you took out a 20-year mortgage to buy a $400,000 house with a 20% down payment at a 6.3% interest rate, for example, your monthly payment would be $2,677. If you bought the same house at the same rate with a 30-year mortgage, your monthly payment would be $2,309 -- a difference of $368 a month, or $4,416 a year.
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.
