With mortgage interest rates hovering near multi-year highs, a 20-year home loan can provide a more competitive rate for homebuyers than a standard 30-year term.
At the same time, a 20-year mortgage offers more financial flexibility than a 15-year term with an aggressive repayment schedule.
Today’s 20-Year Mortgage Rates
Today’s average rate on a 20-year fixed mortgage is 7.05% compared to the 7.11% average rate a week earlier.
The 52-week high for a 20-year fixed mortgage was 7.14% and the 52-week low was 6.56%.
Who Should Consider a 20-Year Mortgage?
A 20-year fixed mortgage is ideal for homebuyers who want a lower interest rate and smaller lifetime loan costs than a 30-year fixed mortgage offers but can’t afford the higher monthly payment of a 15-year mortgage.
The table below compares the monthly payment and total interest for a 20-year term versus a 15-year and 30-year mortgage for a $280,000 starting loan principal.
| Loan term | Interest rate | Monthly payment | Total interest |
|---|---|---|---|
|
30 years
|
6.90%
|
$1,844
|
$383,869
|
|
20 years
|
6.71%
|
$2,122
|
$229,369
|
|
15 years
|
6.23%
|
$2,398
|
$151,591
|
Use our 20-year mortgage calculator to estimate your monthly payment with today’s best rates.
Pros and Cons of 20-Year Mortgages
When comparing current 20-year mortgage rates to other repayment rates and terms, it’s important that you consider the following factors.
Pros of 20-Year Mortgages
- Lower interest rates. Because you’ll pay off the loan a decade earlier, 20-year mortgage rates are usually lower than 30-year mortgage rates.
- Less lifetime interest. In addition to a more competitive interest rate than a 30-year term, you pay less interest overall as you reach your payoff date sooner.
- More affordable than short-term home loans. It’s easier to afford the monthly payment for a 20-year term compared to a shorter-term home loan, such as a 10-year mortgage. Additionally, most lenders won’t charge prepayment penalties if you pay off your mortgage early.
- Fixed monthly payment. You can enjoy a fixed interest rate for the life of your loan, making it easier to estimate your total borrowing costs and ongoing monthly payment.
Cons of 20-Year Mortgages
- More interest than shorter terms. A 20-year home loan still has higher rates and total borrowing costs compared to a 15-year mortgage. You may want to consider a shorter term if you can afford the higher monthly payment.
- Higher monthly payment than a 30-year term. Homebuyers with a limited budget may need help affording the bigger payment that a 20-year loan requires due to its abbreviated repayment cycle.
- Reduced financial flexibility. A hidden consequence of a higher yet affordable monthly payment is that you’ll have less money to save for other financial priorities, like retirement.
- Stricter borrower requirements. It can be harder to qualify for a 20-year repayment term versus a 30-year loan because of the larger monthly payment. For example, your debt-to-income (DTI) ratio might qualify you for a 30-year mortgage, but it could also be too high for more aggressive terms.
How To Get the Best Mortgage Rate
There are several ways to help you qualify for the lowest 20-year mortgage rate.
Compare Lenders
Prequalifying with multiple mortgage lenders helps you find the best rates and fees for your borrowing needs. This initial step doesn’t impact your credit score, although mortgage preapproval requires a hard credit check to receive a personalized rate.
Additionally, consider comparing conventional home loans to government-backed programs like Federal Housing Administration (FHA) loans and U.S. Department of Veterans Affairs (VA) loans.
This extensive research may require more upfront effort. However, the potential rewards include a lower monthly payment and fewer lifetime loan costs.
Improve Your Credit Score
Borrowers typically need a minimum 620 credit score to be eligible for a conventional mortgage, but having good or excellent credit (a score between 670 and 850) can help you qualify for a better rate.
Here are several steps to protect and potentially improve your score:
- Avoid opening new credit cards or loans
- Correct any credit report errors
- Don’t close credit cards in good standing
- Make on-time payments
- Minimize your credit utilization ratio
Related: How To Get A Mortgage With Bad Credit
Increase Your Down Payment
Conventional loans require a minimum 20% down payment to waive private mortgage insurance (PMI). If you need to make a smaller down payment on your 20-year mortgage, you can request cancellation once your loan-to-value (LTV) ratio reaches 80%.
FHA loans require a similar form of mortgage insurance—mortgage insurance premiums (MIPs). It’s possible to waive MIP payments after the first 11 years when your starting LTV ratio is 90% or lower (at least 10% down).
Low Debt-to-Income Ratio
Most lenders prefer a maximum DTI ratio of 43%. Paying off existing debt can help improve your DTI ratio.
Another way to improve your ratio is by increasing your income. Two possibilities include working overtime or transitioning from being a one-income household to a dual-income household.
Apply With Co-Signer
Adding a co-signer or co-borrower with better credit or income can make qualifying for competitive rates and terms easier. As the borrower, you’re still required to make payments, but the co-signer becomes responsible if you stop.
Most applicants ask a trusted relative or friend to be a co-signer or co-borrower. However, the other person may be reluctant as this arrangement can damage a relationship if the loan is no longer in good standing.
When applying with a co-signer isn’t feasible for your situation, first-time homebuyer programs can also provide affordable financing.
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