20-Year vs. 30-Year Mortgages: Get a Better Rate?

Last updated on August 20th, 2018
20-Year vs. 30-Year Mortgages: Get a Better Rate?

It’s time for a new mortgage match-up, and because paying down the mortgage early seems to be so en vogue these days, let’s take a look at “20-year mortgages vs. 30-year mortgages.”

The most common type of mortgage far and away is the 30-year fixed. It amortizes over 30-years, and the mortgage rate never changes during that time. It is the gold standard. But that doesn’t mean it’s the perfect home loan.

Each mortgage payment is the same every month, so there isn’t any fear of interest rates resetting higher and pushing a homeowner toward foreclosure. Pretty basic, right?

This relative simplicity and safety explains their popularity, but they aren’t the end all, be all solution for every homeowner out there. There are other options and different loan terms to look into.

How a 20-Year Fixed Mortgage Works

  • Just like the more common and popular 30-year fixed
  • The interest rate never changes during the loan term
  • But the 20-year mortgage term is 10 years shorter
  • Meaning less interest is paid and the loan is paid back a full decade earlier

The 20-year fixed mortgage is a pretty simple loan program, just like it’s much more popular cousin the 30-year fixed.

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They’re actually no different other than the fact that the mortgage term is 10 years less.

Both come with an interest rate that never changes during the loan term, making it a safe choice for someone fearful of a rate adjustment on an ARM.

The borrower who opts for a 20-year fixed also gets to pay off their home loan a decade earlier.

Aside from owning your home much faster, you’ll also save on interest over the shorter repayment period.

Another benefit is that the interest rate is sometimes a bit cheaper as well.

20-Year Mortgage Loans Can Save You Money

  • It’s not very economical to pay back your mortgage over 30 years
  • Some will even argue that 20 years is too long to do so
  • Considering how much interest you’ll pay over such an extended period of time
  • But not everyone can afford the higher monthly payment

When it comes down it, 30-year mortgages have some drawbacks, with the most obvious one being the long amortization period. They also come with the highest interest rates relative to other loan programs.

And since the mortgage takes so very long to be paid off, more interest is paid and it takes forever to build home equity.

Think of it this way. If you borrowed money from a friend and asked to pay it back over 30 years, they would probably say no. Only mortgage lenders seem willing to do this.

If by chance they agreed, they’d want to charge you a higher rate of interest. And because you’d be paying it back so slowly, you’d pay a lot more interest over that time.

Assuming your loan amount is large, perhaps a jumbo mortgage, it could be the difference of many thousands of dollars versus a mortgage with a shorter term.

Consider a Shorter-Term Mortgage Like the 20-Year Fixed

  • A 20-year fixed can save you a lot of dough
  • And result in a home that is free and clear 10 years earlier
  • The monthly payment may not even much more expensive
  • Perhaps just 1.2 to 1.3X that of a 30-year fixed

So what are homeowners to do? Well, the most common solution to this ”problem” is to look at a shorter-term home mortgage instead, such as a 20-year loan.

While the 15-year fixed is the most common alternative, it comes with its own drawback, namely a much higher monthly mortgage payment that most home buyers can’t afford.

In other words, not every homeowner can just say, “I want to pay my mortgage off faster” and switch to a 15-year fixed or 10-year fixed mortgage. It gets real expensive. Nor can most first-time home buyers qualify at the higher payment.

Fortunately, there are mortgage product options in between, with the most common being the 20-year fixed mortgage.

A 20-year mortgage sheds 10 years off the typical loan term, and results in much less interest paid throughout its duration. The mortgage payments are also relatively manageable.

Tip: There are 20-year FHA mortgages and VA loans available if you don’t have a lot of down payment money but still want to pay your mortgage down fast.

Let’s look at a 20-year fixed example to illustrate the savings:

Loan amount: $200,000


30-year fixed @4% (notice the higher interest rate)
Monthly mortgage payment: $954.83
Total interest paid: $143,738.80

20-year fixed @3.75% (lower rate + shorter term = money saved)
Monthly mortgage payment: $1,185.78
Total interest paid: $84,587.20

20-Year Mortgage Rates Are Cheaper

  • You should also receive a lower mortgage rate
  • If you opt for a 20-year fixed mortgage
  • How much lower will vary by bank and lender
  • Expect a discount somewhere around .25% vs. the 30-year fixed

As you can see from the example above, 20-year fixed mortgage rates aren’t much different than 30-year fixed mortgage rates, though the 20-year mortgage does price a little bit lower than the 30-year fixed.

That lower interest rate can save you even more over the shorter term of the 20-year loan.

Overall, I’d say that 20-year mortgage rates price about a .25% below a comparable 30-year fixed. So 3.75% instead of 4%, or 3.5% instead of 3.75%. You get the idea.

It does depend on the bank or credit union in question. Some may price the loan products fairly similarly, with the only difference reduced closing costs (or fewer discount points).

They’re definitely going to be higher than rates on a 15-year fixed, but you should save money vs. the 30-year fixed.

Of course, you have to consider your property type, credit score, down payment/home equity, other various borrower attributes, and whether we’re talking about conforming mortgages or jumbo mortgages.

Anyway, in our example above the homeowner with the 30-year mortgage pays about $230 less each month, despite the higher mortgage rate. Yes, their monthly mortgage payment would be significantly lower.

But the 20-year fixed results in interest savings of nearly $60,000 over the life of the loan! This borrower would also own their home free and clear an entire decade earlier.

Doesn’t 20 years sound a lot more reasonable than 30? You can actually see the light at the end of the tunnel and pay off the mortgage before you turn gray.

This shorter term can be pretty beneficial, especially if you plan to retire soon and anticipate being on a fixed income.

The 20-year fixed is also a good alternative because you won’t break the bank making your mortgage payment each month. It’s a nice middle ground between 30 years and 15 years, and illustrates the power of comparing mortgages across the whole spectrum.

But again, the monthly payment will be higher than the 30-year payment, which could stretch you thin or limit what you can afford if you’re buying a home.

Tip: When obtaining a mortgage pre-qualification, ask your loan officer if you make enough to support 20-year fixed payments. Or simply do the math yourself with the help of a mortgage calculator.

Go With a 20-Year Fixed Mortgage to Stay on Course

  • If you have a 30-year mortgage and want to refinance
  • Consider switching to the 20-year fixed
  • To avoid restarting the clock on your mortgage
  • You can save even more interest and pay your home loan off a lot faster

If you’re currently in a 30-year fixed, and don’t want to reset the mortgage clock during a mortgage refinance, consider a move to a 20-year fixed to stay on course without even paying more each month.

For example, if you’ve already been paying down your mortgage for five years, you won’t necessarily want to take on a fresh 30-year mortgage if your goal is to pay off your loan.

Because mortgage rates are so low at the moment, you may be able to refinance from a 30-year to a 20-year fixed mortgage and still even lower your monthly payment.

Also keep in mind that there are other loan types outside the 15, 20, and 30-year options. Some banks even allow you to choose your own mortgage term, whether it’s a 17-year fixed or a 24-year fixed.

So be sure to look at all available home loan options to determine which makes the most sense financially for your unique situation.

Also ask yourself why you want to pay the mortgage off sooner rather than later. There may be a better place for your money.

Read more: 30-year fixed vs. 15-year fixed.

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  1. William M. Jacobs February 8, 2012 at 6:20 pm -

    The author is correct as far as he goes, but he neglects to share the additional option that the 30 year fixed rate loan as well as most other loan programs also allow for a partial pre-payment. Therefore, a borrower can add whatever they feel they can afford each month or whenever they have additional resources and reduce their principal balance accordingly.

  2. Chris February 9, 2012 at 11:10 am -

    I refinanced my Wells Fargo 30 year mortgage from 6.5% to my credit union 20 year mortgage at 4.2%, paying now about $80 less a month and saving a huge amount of interest in the long run! I shaved 5 years from my mortgage sentence with no points or closing costs, and no prepayment penalties. Shop around.

  3. Guardian September 4, 2012 at 9:16 pm -

    My advice: If you need a 30 year note in this economic climate, you’re buying too much house! Do yourself a favor and do nothing more than a 15 year loan. I’m going to refinance again, from 15 to 10, going from 4.375 to 2.75, and will dave myself $42,000 in interest alone over the next 10 years. Oh, and my payments do not go up, they stay the same.

  4. Colin Robertson September 5, 2012 at 8:56 am -

    Guardian, that’s all good and well, but some homeowners aren’t interested in rapidly paying off their mortgage. They may have a better use for their money. So it’s not always an affordability issue.

  5. Joe November 13, 2012 at 12:18 pm -

    Good advice. For me though, I take the longest mortgage available with the lowest payment and invest the extra dollars. I have only avergaed about 5% a year in my investments while paying on average 6% over the last 10 years, however the 5% has grown tax free while the 6% is actually less due to the mortgage tax write off. Also, I would like to think that the market will eventually turn up and 10 years of “buying low” will pay off in the long run.
    You only live once and need to take some risk.

  6. Harlan June 25, 2013 at 2:44 pm -

    The only downside to the 20-year fixed is that the interest rate isn’t much cheaper than the 30-year. But at least it amortizes a lot faster, saving the borrower a ton of interest over time…

  7. Val August 14, 2013 at 11:11 am -

    Yep…don’t opt for a 20-year fixed if you want a lower interest rate, as it will probably be the same as the 30-year. However, you will pay a lot less interest over the loan term. Just be sure you can handle the larger monthly payment, because there’s no going back once it’s done. If you can’t handle it, stick with a 30-year and make extra payments when you can to reduce interest expense.

  8. Mel August 18, 2013 at 1:24 pm -

    If you’re thinking about a 20-year loan you might as well just go with a 15-year instead. You’ll actually get a lower interest rate and pay off your mortgage five years earlier. And the payment shouldn’t be too much higher. Just my two cents.

  9. Big Al September 7, 2013 at 9:09 pm -

    While you’re at it, why not get a 10-year fixed. Not everyone can afford a 15-year term Mel! Or a 30-year for that matter.

  10. Hue F. October 22, 2013 at 9:51 am -

    Go with the 20-year and save a ton of interest. Who cares if the interest rates are the same.

  11. N.C. April 19, 2014 at 4:23 pm -

    If it’s a question of affordability, select the 30-year, make larger payments as if it were a 20-year fixed and drop back to the 30-year payments if your budget eventually doesn’t allow it.

  12. Rich July 7, 2016 at 4:39 pm -

    Just pay cash for your house like I did. Problem solved.

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