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While a 30-year mortgage is the most popular option, a 20-year mortgage can be a good compromise between the lower monthly payments of a 30-year mortgage and the lower interest rates of a 15-year mortgage. years. Here’s what you need to know about 20-year mortgage rates and terms.
If you’re considering a 20-year mortgage, Credible lets you compare pre-qualified mortgage rates in minutes.
Current Trends in 20-Year Mortgage Rates
Here’s how mortgage rates have moved over the past 12 months.
Historical mortgage rates
Here’s what the average annual mortgage interest rate has looked like over the past 39 years.
How Credible Mortgage Rates Are Calculated
Changing economic conditions, central bank policy decisions, investor sentiment and other factors influence the movement of mortgage rates. Credible’s average mortgage rates and mortgage refinance rates are calculated based on information provided by partner lenders who pay compensation to Credible.
The rates assume a borrower has a 740 credit score and is borrowing a conventional loan for a single-family home that will be their primary residence. Rates also assume no (or very low) discount points and a 20% deposit.
Credible mortgage rates will only give you an idea of current average rates. The rate you receive may vary depending on a number of factors.
Credible, it’s easy to compare mortgage rateswithout affecting your credit score.
Benefits of a 20 year mortgage
The most notable benefits of a 20-year mortgage include:
- Save on interest. Compared to a 30 year mortgage, a 20-year mortgage offers a lower interest rate. This can save you thousands of dollars over the life of your loan.
- Build equity faster. Although you will have higher monthly payments with a 20-year mortgage than with a 30-year mortgage, you will be able to increase the equity in your home more quickly. Additionally, if you have private mortgage insurance (PMI)you may be able to get rid of it sooner.
- Pay off your home faster. The biggest advantage of a 20-year term over a 30-year mortgage is that you’ll own your home free and cleared 10 years earlier. It can give you some much-needed peace of mind.
Disadvantages of a 20 year mortgage
A 20-year mortgage can also have disadvantages, such as:
- Make higher monthly payments. Since you will have a shorter term than with a 30-year mortgage, your monthly payments will be higher. If you have a tight budget or an unstable job, this can be a problem.
- Have less cash on hand. Larger monthly payments can lead to cash flow problems. You’ll have less money to cover extra living expenses, pay off debt, save for retirement, and achieve other financial goals.
- Pay more interest over shorter terms. With a 20-year mortgage, you’ll save on interest compared to a 30-year mortgage, but you’ll pay more interest than you would with a shorter term (like a 15-year loan).
Find the mortgage that’s right for you
Before taking out a mortgage, follow these steps:
- Check your credit. Since lenders will check your credit when you apply for a mortgage, it’s important to know where you stand. To visit AnnualCreditReport.com to get free copies of your credit reports from Equifax, Experian and TransUnion. If you notice any errors or inaccuracies, be sure to dispute them.
- Determine what you can afford. As a general rule, don’t spend more than 28% of your pre-tax income on your mortgage payment, including property taxes and home insurance. Of course, what you can afford and what you feel comfortable with may be different. Take the time to think about the type of mortgage payment that will best suit your budget, lifestyle and goals.
- Get prequalified. Even if you think you can afford a specific loan, there is no guarantee that a lender will approve you. By prequalify, you will get an estimate of how much a lender can lend you. Once you’ve shared some details about your income, assets, and debts, you’ll know how much you can qualify for when looking for a mortgage.
- Shop around and compare mortgages. Not all home loans are created equal. That’s why it makes sense to shop around and find out what’s available for you. Compare interest rates, terms and fees for all your options.
How to get a good 20-year fixed rate
When lenders review your mortgage application to determine your interest rate, they consider the following factors:
- Deposit – A deposit is a percentage of the purchase price of your home that you pay up front. The more money you invest, the less you will have to borrow. If you put down 20% or more, you may have a better chance of getting a good fixed rate on a 20-year home loan because lenders won’t have to lend you that much money. Usually, you can also avoid paying PMI with a down payment of 20% or more.
- Credit score — Your credit score is a three-digit number that gives lenders an idea of how likely you are to repay your loan. The higher your credit score, the less risk you have as a borrower, so you can benefit from better fixed interest rates.
- Debt-to-income ratio (DTI) — Lenders also consider your DTI ratio, which is a calculation of all your monthly debt payments divided by your gross monthly income. While each lender has their own requirements, most look for a DTI no higher than 43%. Generally, the lower your DTI, the better.
What credit score do you need to get a good 20-year mortgage rate?
Your credit score ranges from 300 to 850. The higher it is, the more likely you are to get a good 20-year mortgage rate. FICO rates credit scores this way:
- 300 to 579 — Poor
- 580 to 669 — Fair
- 670 to 739 — Good
- 740 to 799 — very well
- 800 to 850 — Exceptional
With a good, very good, or exceptional credit score, you’ll likely qualify for the best rates on a 20-year home loan. If you choose a conventional loan, you will generally need a score of 620 or higher. A lower credit score may be acceptable if you opt for a government-backed loan, such as an FHA loan, VA loan, or USDA loan.
Is a 20-year fixed mortgage a good deal?
A 20-year fixed mortgage can be a good choice if you can comfortably afford a higher monthly payment than you would with a 30-year mortgage. This may be because you have a lot of money left over at the end of each month or you feel stable in your career.
A 20-year loan can also be a good idea if paying off your home faster is a financial priority. Plus, it’s worth considering if you want to lower your mortgage interest but can’t afford the monthly payments of a 15-year loan.
If you’re ready to buy a home, use Credible to compare mortgage rates from multiple lenders, all in one place.
Should you get a fixed rate mortgage or an adjustable rate mortgage?
The most common type of mortgage is a fixed rate mortgage, where your interest rate stays the same for the life of the loan. Since the amount you pay doesn’t fluctuate, it’s ideal if you have a fixed income, an inflexible budget, or plan to stay home for a while. It can also give you some peace of mind if you have a low tolerance for risk. You’ll be able to plan your mortgage payments in advance and won’t have to worry about unexpected increases.
On the other hand, an adjustable rate mortgage, also known as an adjustable rate mortgage, or ARM, comes with an interest rate that fluctuates. The rate is fixed for several years, and it can start at a lower rate than fixed rate mortgages. Then, it will adjust up or down depending on the evolution of market rates. You can consider an adjustable rate mortgage if you don’t plan to live in your home for very long.