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20 Year Mortgage - Choosing a 20 Year Mortgage to Save Money

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Home-buying can be a tricky business for those trying to get the best deal on interest rates while being able to afford a quality home with reasonable monthly payments. Although the 30-year, fixed-rate mortgage is one of the most popular because of the low monthly payments, the interest rates are much higher than other types of loans. For this reason, the 20-year mortgage remains very popular and is available from most every lending institution offering mortgages.

With a fixed-rate, 20 year mortgage, the interest rates will stay the same throughout the term of the loan. Monthly payments will also stay the same throughout the loan, but at first, payments will be going more toward interest than toward the principle balance. In most 20-year mortgages, though, additional payments can be made to reduce the principle.

The primary benefits of a 20-year mortgage over a 30-year mortgage is that interest rates are lower and the final cost of the home will be lower because the home is paid-off faster. The result of this culminates into savings of thousands of dollars. The interest rate reduction for a 20-year mortgage is usually about .15% less than a 30-year mortgage. 15-year mortgages, in turn, are about .25% less than 20-year mortgages.

There are some drawbacks to 20-year mortgages. The primary drawback is that it is more difficult to qualify for a 20-year term than it is for a 30-year term. For those whose credit is “excellent,” this is not a problem, but if your credit score is only in the “good” range, the homebuyer may not qualify and be forced into a 30-year mortgage. The other disadvantage is the higher monthly payments.

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