Can I Get a 20-Year Mortgage?

A 20-year mortgage can be an alternative to the more traditional 15- or 30-year mortgage loan.

A 20-year mortgage can be an alternative to the more traditional 15- or 30-year mortgage loan.

Choosing the length of a mortgage term can be a lot like the story of "Goldilocks and the Three Bears." A 30-year mortgage may be too long, while a 15-year term may be too short. However, in some cases, a 20-year mortgage can be just right, especially if you're refinancing from a 30-year mortgage that includes a relatively high interest rate..

Benefits

According to the Main Street website, the main benefit of a 20-year mortgage is that it offers a significantly lower rate than a 30-year fixed mortgage. For you, that means a decrease in the amount of interest you'll have to pay over time. If you refinance from a 30-year to a 20-year mortgage early on, you may also be able to shorten the overall length of your loan term, meaning you'll own your home outright sooner.

Considerations

Because you're making mortgage payments for a shorter period of time, your monthly payment will probably be higher with a 20-year mortgage than a 30-year mortgage. This means that you'll have to crunch some numbers to see if you can afford the higher payments. It may involve a little belt-tightening, like switching from the mocha latte cappuccino deluxe to just plain old coffee, but that regular swill might taste a little better when you realize you can pay off your home sooner.

Availability

Lending institutions don't heavily advertise the fact that they have a 20-year product, preferring to hype the more traditional 15- or 30-year varieties, so you may have to ask if your lender of choice offers them. Another option is to search online for 20-year rates. A number of websites are available to aid in your search, including Lendingtree.com or BankingMyWay.com. It's a good idea to get quotes from several lenders, as rates may vary.

Example

Here's an example of how a 20-year loan could save you money in a refinancing situation, as illustrated by the Main Street website. Suppose you took out a $200,000, 30-year mortgage with an interest rate of 6 percent. By refinancing to a 20-year mortgage with a rate of 4.5 percent, your monthly payment would increase from $1,199.10 to $1,265.30. However, because of the lower interest rate, your interest amount would decrease from $231,677.03 to $103,671.63, and your total payment amount would decrease from $431,677.03 to $303,671.63.

About the Author

Chris Joseph writes for newspapers and online publications, covering business, technology, health, fitness and sports. He holds a Bachelor of Science in marketing from York College of Pennsylvania.

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