Compare 20-Year Fixed-Rate Mortgages
Most American homebuyers who get a mortgage choose the same loan product: 30-year loans with fixed-interest rates. But maybe you don’t want to be saddled with your debt for three decades. Paying off your loan faster comes with some serious upside, like less interest over the life of the loan and faster equity gains.
If you want to explore these benefits, you can consider a 20-year fixed-rate mortgage.
What is a 20-year fixed-rate mortgage?
When breaking down this kind of loan, you can learn a lot from its name.
The “20-year” portion tells you how long you have to pay off this type of mortgage. You’ll amortize the loan — meaning you’ll get its balance to $0 — over 240 payments (20 years * 12 months in a year).
The “fixed-rate” part tells you how the interest rate works on the loan. Unlike adjustable-rate mortgages (ARMs), which have rates that fluctuate, fixed-rate loans lock in one interest rate. That rate stays the same for the entire life of the loan. With a 20-year mortgage, that means you’re getting the same interest rate for all 20 years — regardless of what the market does during that time.
The pros and cons of a 20-year fixed-rate mortgage
A 20-year fixed-rate mortgage could be the sweet spot for you, somewhere between the low monthly payments of a 30-year loan and the interest-saving 15-year mortgage. It’s a rarer loan product than both of those options, though. Before you decide to seek out this potentially harder-to-find option, you should understand its upsides and drawbacks.
Pros of a 20-year fixed-rate mortgage
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The fixed interest rate means your principal and interest (P&I) payments don’t change throughout the entire loan. This should help you budget and make financial decisions that keep your loan affordable.
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Most obviously, a 20-year loan means you’ll pay off your mortgage faster than if you chose a 30-year option. If your priority is living debt-free, that accelerated timeline is a definite perk.
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Because you pay off the loan faster, interest has less time to accrue. (You can use this amortization calculator to crunch the numbers and compare total interest over a 30- and 20-year loan.)
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Lenders see shorter-term loans as lower risk. A 20-year mortgage should come with a slightly lower interest rate than a 30-year loan for the same amount of money.
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The 20-year loan sits between more common 15- and 30-year options. That gives you a faster payoff timeline with less pressure on your budget than the more aggressive 15-year payoff schedule.
Cons of a 20-year fixed-rate mortgage
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Losing a decade off the typical 30-year mortgage means bigger monthly payments to pay off your loan in time.
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Those bigger payments can tip your debt-to-income (DTI) ratio higher, making it harder to qualify for the mortgage.
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The 20-year payoff timeline means you build equity more slowly than if you chose a 15-year loan. Interest has more time to build up, too.
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20-year mortgages are less common than 15- and 30-year options, so fewer lenders offer them. You won’t have as many options available if you go this route.
How to compare 20-Year Fixed-Rate mortgage rates
If you only take one piece of advice when you’re getting a mortgage, let it be this: compare rates from at least three different lenders. Doing so can save you thousands of dollars over the life of your loan.
To make it easier for you to put the work in here, follow these steps:
Step 1: Understand your borrower profile
First, you want to get a handle on how mortgage lenders are going to see you. If you look like you’re going to be able to repay your home loan fairly easily, they’ll offer you more favorable conditions. If you look high-risk, you’re going to pay more for your mortgage. Specifically, you’ll be charged a higher interest rate.
So, what makes a borrower low- or high-risk? To decide what kind of loan to offer to you (if any), lenders look at a lot of factors. The biggest ones here include:
- Your monthly income — you don’t want an overly large chunk to have to go toward paying your monthly mortgage bill, which lenders measure with your debt-to-income (DTI) ratio
- Your credit score, which essentially tells them how good you’ve been with managing money in the past
- Your loan-to-value (LTV) ratio (higher is riskier) — the price of the house and your down payment size both come into play here
If you’re not in good shape in any of these areas, putting in some work before you buy (e.g., working on your credit score, lowering your DTI ratio) can help you get a lower interest rate.
Step 2: Use rate tables to see what’s on offer today
There are lots of resources online that show you rate offers from leading lenders. Use a mortgage rate table to get a feel for what kind of interest rates are available from financial institutions that provide home loans in your area.
Ideally, that rate table lets you input personal information, like your credit score and the price of the house you want to buy. This way, the rates you get shown should align with what you’re actually eligible to get. A lot of lenders advertise low starting rates, but only the “best” borrowers will be approved for them once they apply.
Step 3: Get preapproved with three lenders
Once you’ve picked out a few lenders that look good to you, go through their preapproval process. That will mean filling out some paperwork, but it’s the best way to figure out what you can really qualify for in terms of loan size and interest rate.
Have financial documents — like your bank statement and pay stubs — handy to make it easier to complete your preapproval applications.
Step 4: Compare preapprovals
When you get preapproved, the lender should give you documentation about your potential mortgage. Ideally, this gives you a feel for the total amount you’re borrowing, the repayment term, the interest rate, fees, and closing costs.
Line up your quotes from each lender and go through them, paying special attention to the annual percentage rate (APR). This tells you how much you’ll pay each year for the loan including not just interest, but also fees. By looking at APRs, you get a clear idea of what you’ll truly pay if you choose that specific mortgage. This helps you identify the best option for yourself and your financial goals.
If you’re ready to start comparing 20-Year Fixed-Rate rates, use our rate table to get started. We have fields up top where you can input key details like your credit score range and zip code so we can best tailor the mortgage rate offers to you.