20 Year Fixed Rate Mortgage Calculator
Use this free tool to figure your monthly payments on a 20-year FRM for a given loan amount. Current 20-year Fairfield home loan rates are shown beneath the calculator.
Current Fairfield 20-Year Mortgage Rates on a $230,000 Home Loan
The following table highlights locally available current mortgage rates. By default 20-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
Amortization Schedule for a $230,000.00 20-Year FRM Refi Home Loan @ 4.20% APR
| Year | Month | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | 1 | $805.00 | $613.11 | $229,386.89 |
| 1 | 2 | $802.85 | $615.26 | $228,771.63 |
| 1 | 3 | $800.70 | $617.41 | $228,154.22 |
| 1 | 4 | $798.54 | $619.57 | $227,534.64 |
| 1 | 5 | $796.37 | $621.74 | $226,912.90 |
| 1 | 6 | $794.20 | $623.92 | $226,288.98 |
| 1 | 7 | $792.01 | $626.10 | $225,662.88 |
| 1 | 8 | $789.82 | $628.29 | $225,034.59 |
| 1 | 9 | $787.62 | $630.49 | $224,404.10 |
| 1 | 10 | $785.41 | $632.70 | $223,771.40 |
| 1 | 11 | $783.20 | $634.91 | $223,136.49 |
| 1 | 12 | $780.98 | $637.13 | $222,499.35 |
| Year 1 | $9,516.71 | $7,500.65 | $222,499.35 | |
| 2 | 1 | $778.75 | $639.36 | $221,859.99 |
| 2 | 2 | $776.51 | $641.60 | $221,218.39 |
| 2 | 3 | $774.26 | $643.85 | $220,574.54 |
| 2 | 4 | $772.01 | $646.10 | $219,928.44 |
| 2 | 5 | $769.75 | $648.36 | $219,280.07 |
| 2 | 6 | $767.48 | $650.63 | $218,629.44 |
| 2 | 7 | $765.20 | $652.91 | $217,976.53 |
| 2 | 8 | $762.92 | $655.19 | $217,321.34 |
| 2 | 9 | $760.62 | $657.49 | $216,663.85 |
| 2 | 10 | $758.32 | $659.79 | $216,004.06 |
| 2 | 11 | $756.01 | $662.10 | $215,341.96 |
| 2 | 12 | $753.70 | $664.42 | $214,677.54 |
| Year 2 | $9,195.54 | $7,821.81 | $214,677.54 | |
| 3 | 1 | $751.37 | $666.74 | $214,010.80 |
| 3 | 2 | $749.04 | $669.07 | $213,341.73 |
| 3 | 3 | $746.70 | $671.42 | $212,670.31 |
| 3 | 4 | $744.35 | $673.77 | $211,996.54 |
| 3 | 5 | $741.99 | $676.12 | $211,320.42 |
| 3 | 6 | $739.62 | $678.49 | $210,641.93 |
| 3 | 7 | $737.25 | $680.87 | $209,961.06 |
| 3 | 8 | $734.86 | $683.25 | $209,277.81 |
| 3 | 9 | $732.47 | $685.64 | $208,592.17 |
| 3 | 10 | $730.07 | $688.04 | $207,904.13 |
| 3 | 11 | $727.66 | $690.45 | $207,213.68 |
| 3 | 12 | $725.25 | $692.86 | $206,520.82 |
| Year 3 | $8,860.63 | $8,156.72 | $206,520.82 | |
| 4 | 1 | $722.82 | $695.29 | $205,825.53 |
| 4 | 2 | $720.39 | $697.72 | $205,127.81 |
| 4 | 3 | $717.95 | $700.17 | $204,427.64 |
| 4 | 4 | $715.50 | $702.62 | $203,725.03 |
| 4 | 5 | $713.04 | $705.08 | $203,019.95 |
| 4 | 6 | $710.57 | $707.54 | $202,312.41 |
| 4 | 7 | $708.09 | $710.02 | $201,602.39 |
| 4 | 8 | $705.61 | $712.50 | $200,889.88 |
| 4 | 9 | $703.11 | $715.00 | $200,174.89 |
| 4 | 10 | $700.61 | $717.50 | $199,457.39 |
| 4 | 11 | $698.10 | $720.01 | $198,737.37 |
| 4 | 12 | $695.58 | $722.53 | $198,014.84 |
| Year 4 | $8,511.37 | $8,505.98 | $198,014.84 | |
| 5 | 1 | $693.05 | $725.06 | $197,289.78 |
| 5 | 2 | $690.51 | $727.60 | $196,562.18 |
| 5 | 3 | $687.97 | $730.15 | $195,832.04 |
| 5 | 4 | $685.41 | $732.70 | $195,099.34 |
| 5 | 5 | $682.85 | $735.27 | $194,364.07 |
| 5 | 6 | $680.27 | $737.84 | $193,626.23 |
| 5 | 7 | $677.69 | $740.42 | $192,885.81 |
| 5 | 8 | $675.10 | $743.01 | $192,142.80 |
| 5 | 9 | $672.50 | $745.61 | $191,397.19 |
| 5 | 10 | $669.89 | $748.22 | $190,648.96 |
| 5 | 11 | $667.27 | $750.84 | $189,898.12 |
| 5 | 12 | $664.64 | $753.47 | $189,144.65 |
| Year 5 | $8,147.16 | $8,870.19 | $189,144.65 | |
| 6 | 1 | $662.01 | $756.11 | $188,388.55 |
| 6 | 2 | $659.36 | $758.75 | $187,629.79 |
| 6 | 3 | $656.70 | $761.41 | $186,868.39 |
| 6 | 4 | $654.04 | $764.07 | $186,104.31 |
| 6 | 5 | $651.37 | $766.75 | $185,337.57 |
| 6 | 6 | $648.68 | $769.43 | $184,568.13 |
| 6 | 7 | $645.99 | $772.12 | $183,796.01 |
| 6 | 8 | $643.29 | $774.83 | $183,021.18 |
| 6 | 9 | $640.57 | $777.54 | $182,243.64 |
| 6 | 10 | $637.85 | $780.26 | $181,463.38 |
| 6 | 11 | $635.12 | $782.99 | $180,680.39 |
| 6 | 12 | $632.38 | $785.73 | $179,894.66 |
| Year 6 | $7,767.36 | $9,249.99 | $179,894.66 | |
| 7 | 1 | $629.63 | $788.48 | $179,106.18 |
| 7 | 2 | $626.87 | $791.24 | $178,314.94 |
| 7 | 3 | $624.10 | $794.01 | $177,520.93 |
| 7 | 4 | $621.32 | $796.79 | $176,724.14 |
| 7 | 5 | $618.53 | $799.58 | $175,924.56 |
| 7 | 6 | $615.74 | $802.38 | $175,122.19 |
| 7 | 7 | $612.93 | $805.19 | $174,317.00 |
| 7 | 8 | $610.11 | $808.00 | $173,509.00 |
| 7 | 9 | $607.28 | $810.83 | $172,698.17 |
| 7 | 10 | $604.44 | $813.67 | $171,884.50 |
| 7 | 11 | $601.60 | $816.52 | $171,067.98 |
| 7 | 12 | $598.74 | $819.37 | $170,248.61 |
| Year 7 | $7,371.29 | $9,646.06 | $170,248.61 | |
| 8 | 1 | $595.87 | $822.24 | $169,426.36 |
| 8 | 2 | $592.99 | $825.12 | $168,601.24 |
| 8 | 3 | $590.10 | $828.01 | $167,773.23 |
| 8 | 4 | $587.21 | $830.91 | $166,942.33 |
| 8 | 5 | $584.30 | $833.81 | $166,108.51 |
| 8 | 6 | $581.38 | $836.73 | $165,271.78 |
| 8 | 7 | $578.45 | $839.66 | $164,432.12 |
| 8 | 8 | $575.51 | $842.60 | $163,589.52 |
| 8 | 9 | $572.56 | $845.55 | $162,743.97 |
| 8 | 10 | $569.60 | $848.51 | $161,895.46 |
| 8 | 11 | $566.63 | $851.48 | $161,043.98 |
| 8 | 12 | $563.65 | $854.46 | $160,189.52 |
| Year 8 | $6,958.27 | $10,059.08 | $160,189.52 | |
| 9 | 1 | $560.66 | $857.45 | $159,332.07 |
| 9 | 2 | $557.66 | $860.45 | $158,471.62 |
| 9 | 3 | $554.65 | $863.46 | $157,608.16 |
| 9 | 4 | $551.63 | $866.48 | $156,741.68 |
| 9 | 5 | $548.60 | $869.52 | $155,872.16 |
| 9 | 6 | $545.55 | $872.56 | $154,999.60 |
| 9 | 7 | $542.50 | $875.61 | $154,123.99 |
| 9 | 8 | $539.43 | $878.68 | $153,245.31 |
| 9 | 9 | $536.36 | $881.75 | $152,363.55 |
| 9 | 10 | $533.27 | $884.84 | $151,478.71 |
| 9 | 11 | $530.18 | $887.94 | $150,590.78 |
| 9 | 12 | $527.07 | $891.04 | $149,699.73 |
| Year 9 | $6,527.56 | $10,489.79 | $149,699.73 | |
| 10 | 1 | $523.95 | $894.16 | $148,805.57 |
| 10 | 2 | $520.82 | $897.29 | $147,908.27 |
| 10 | 3 | $517.68 | $900.43 | $147,007.84 |
| 10 | 4 | $514.53 | $903.59 | $146,104.25 |
| 10 | 5 | $511.36 | $906.75 | $145,197.51 |
| 10 | 6 | $508.19 | $909.92 | $144,287.59 |
| 10 | 7 | $505.01 | $913.11 | $143,374.48 |
| 10 | 8 | $501.81 | $916.30 | $142,458.18 |
| 10 | 9 | $498.60 | $919.51 | $141,538.67 |
| 10 | 10 | $495.39 | $922.73 | $140,615.94 |
| 10 | 11 | $492.16 | $925.96 | $139,689.98 |
| 10 | 12 | $488.91 | $929.20 | $138,760.79 |
| Year 10 | $6,078.41 | $10,938.94 | $138,760.79 | |
| 11 | 1 | $485.66 | $932.45 | $137,828.34 |
| 11 | 2 | $482.40 | $935.71 | $136,892.62 |
| 11 | 3 | $479.12 | $938.99 | $135,953.63 |
| 11 | 4 | $475.84 | $942.27 | $135,011.36 |
| 11 | 5 | $472.54 | $945.57 | $134,065.79 |
| 11 | 6 | $469.23 | $948.88 | $133,116.90 |
| 11 | 7 | $465.91 | $952.20 | $132,164.70 |
| 11 | 8 | $462.58 | $955.54 | $131,209.16 |
| 11 | 9 | $459.23 | $958.88 | $130,250.28 |
| 11 | 10 | $455.88 | $962.24 | $129,288.05 |
| 11 | 11 | $452.51 | $965.60 | $128,322.44 |
| 11 | 12 | $449.13 | $968.98 | $127,353.46 |
| Year 11 | $5,610.02 | $11,407.33 | $127,353.46 | |
| 12 | 1 | $445.74 | $972.38 | $126,381.08 |
| 12 | 2 | $442.33 | $975.78 | $125,405.30 |
| 12 | 3 | $438.92 | $979.19 | $124,426.11 |
| 12 | 4 | $435.49 | $982.62 | $123,443.49 |
| 12 | 5 | $432.05 | $986.06 | $122,457.43 |
| 12 | 6 | $428.60 | $989.51 | $121,467.92 |
| 12 | 7 | $425.14 | $992.97 | $120,474.94 |
| 12 | 8 | $421.66 | $996.45 | $119,478.49 |
| 12 | 9 | $418.17 | $999.94 | $118,478.55 |
| 12 | 10 | $414.67 | $1,003.44 | $117,475.12 |
| 12 | 11 | $411.16 | $1,006.95 | $116,468.17 |
| 12 | 12 | $407.64 | $1,010.47 | $115,457.69 |
| Year 12 | $5,121.59 | $11,895.77 | $115,457.69 | |
| 13 | 1 | $404.10 | $1,014.01 | $114,443.68 |
| 13 | 2 | $400.55 | $1,017.56 | $113,426.12 |
| 13 | 3 | $396.99 | $1,021.12 | $112,405.00 |
| 13 | 4 | $393.42 | $1,024.70 | $111,380.30 |
| 13 | 5 | $389.83 | $1,028.28 | $110,352.02 |
| 13 | 6 | $386.23 | $1,031.88 | $109,320.14 |
| 13 | 7 | $382.62 | $1,035.49 | $108,284.65 |
| 13 | 8 | $379.00 | $1,039.12 | $107,245.53 |
| 13 | 9 | $375.36 | $1,042.75 | $106,202.78 |
| 13 | 10 | $371.71 | $1,046.40 | $105,156.38 |
| 13 | 11 | $368.05 | $1,050.07 | $104,106.31 |
| 13 | 12 | $364.37 | $1,053.74 | $103,052.57 |
| Year 13 | $4,612.23 | $12,405.12 | $103,052.57 | |
| 14 | 1 | $360.68 | $1,057.43 | $101,995.14 |
| 14 | 2 | $356.98 | $1,061.13 | $100,934.01 |
| 14 | 3 | $353.27 | $1,064.84 | $99,869.17 |
| 14 | 4 | $349.54 | $1,068.57 | $98,800.60 |
| 14 | 5 | $345.80 | $1,072.31 | $97,728.29 |
| 14 | 6 | $342.05 | $1,076.06 | $96,652.22 |
| 14 | 7 | $338.28 | $1,079.83 | $95,572.39 |
| 14 | 8 | $334.50 | $1,083.61 | $94,488.78 |
| 14 | 9 | $330.71 | $1,087.40 | $93,401.38 |
| 14 | 10 | $326.90 | $1,091.21 | $92,310.18 |
| 14 | 11 | $323.09 | $1,095.03 | $91,215.15 |
| 14 | 12 | $319.25 | $1,098.86 | $90,116.29 |
| Year 14 | $4,081.07 | $12,936.28 | $90,116.29 | |
| 15 | 1 | $315.41 | $1,102.71 | $89,013.58 |
| 15 | 2 | $311.55 | $1,106.57 | $87,907.02 |
| 15 | 3 | $307.67 | $1,110.44 | $86,796.58 |
| 15 | 4 | $303.79 | $1,114.32 | $85,682.25 |
| 15 | 5 | $299.89 | $1,118.22 | $84,564.03 |
| 15 | 6 | $295.97 | $1,122.14 | $83,441.89 |
| 15 | 7 | $292.05 | $1,126.07 | $82,315.83 |
| 15 | 8 | $288.11 | $1,130.01 | $81,185.82 |
| 15 | 9 | $284.15 | $1,133.96 | $80,051.86 |
| 15 | 10 | $280.18 | $1,137.93 | $78,913.92 |
| 15 | 11 | $276.20 | $1,141.91 | $77,772.01 |
| 15 | 12 | $272.20 | $1,145.91 | $76,626.10 |
| Year 15 | $3,527.16 | $13,490.19 | $76,626.10 | |
| 16 | 1 | $268.19 | $1,149.92 | $75,476.18 |
| 16 | 2 | $264.17 | $1,153.95 | $74,322.23 |
| 16 | 3 | $260.13 | $1,157.98 | $73,164.25 |
| 16 | 4 | $256.07 | $1,162.04 | $72,002.21 |
| 16 | 5 | $252.01 | $1,166.10 | $70,836.10 |
| 16 | 6 | $247.93 | $1,170.19 | $69,665.92 |
| 16 | 7 | $243.83 | $1,174.28 | $68,491.64 |
| 16 | 8 | $239.72 | $1,178.39 | $67,313.24 |
| 16 | 9 | $235.60 | $1,182.52 | $66,130.73 |
| 16 | 10 | $231.46 | $1,186.66 | $64,944.07 |
| 16 | 11 | $227.30 | $1,190.81 | $63,753.26 |
| 16 | 12 | $223.14 | $1,194.98 | $62,558.29 |
| Year 16 | $2,949.54 | $14,067.81 | $62,558.29 | |
| 17 | 1 | $218.95 | $1,199.16 | $61,359.13 |
| 17 | 2 | $214.76 | $1,203.36 | $60,155.77 |
| 17 | 3 | $210.55 | $1,207.57 | $58,948.21 |
| 17 | 4 | $206.32 | $1,211.79 | $57,736.41 |
| 17 | 5 | $202.08 | $1,216.04 | $56,520.38 |
| 17 | 6 | $197.82 | $1,220.29 | $55,300.09 |
| 17 | 7 | $193.55 | $1,224.56 | $54,075.52 |
| 17 | 8 | $189.26 | $1,228.85 | $52,846.68 |
| 17 | 9 | $184.96 | $1,233.15 | $51,613.53 |
| 17 | 10 | $180.65 | $1,237.47 | $50,376.06 |
| 17 | 11 | $176.32 | $1,241.80 | $49,134.26 |
| 17 | 12 | $171.97 | $1,246.14 | $47,888.12 |
| Year 17 | $2,347.19 | $14,670.17 | $47,888.12 | |
| 18 | 1 | $167.61 | $1,250.50 | $46,637.62 |
| 18 | 2 | $163.23 | $1,254.88 | $45,382.74 |
| 18 | 3 | $158.84 | $1,259.27 | $44,123.46 |
| 18 | 4 | $154.43 | $1,263.68 | $42,859.78 |
| 18 | 5 | $150.01 | $1,268.10 | $41,591.68 |
| 18 | 6 | $145.57 | $1,272.54 | $40,319.14 |
| 18 | 7 | $141.12 | $1,277.00 | $39,042.14 |
| 18 | 8 | $136.65 | $1,281.47 | $37,760.68 |
| 18 | 9 | $132.16 | $1,285.95 | $36,474.73 |
| 18 | 10 | $127.66 | $1,290.45 | $35,184.27 |
| 18 | 11 | $123.14 | $1,294.97 | $33,889.31 |
| 18 | 12 | $118.61 | $1,299.50 | $32,589.81 |
| Year 18 | $1,719.04 | $15,298.31 | $32,589.81 | |
| 19 | 1 | $114.06 | $1,304.05 | $31,285.76 |
| 19 | 2 | $109.50 | $1,308.61 | $29,977.15 |
| 19 | 3 | $104.92 | $1,313.19 | $28,663.95 |
| 19 | 4 | $100.32 | $1,317.79 | $27,346.16 |
| 19 | 5 | $95.71 | $1,322.40 | $26,023.76 |
| 19 | 6 | $91.08 | $1,327.03 | $24,696.73 |
| 19 | 7 | $86.44 | $1,331.67 | $23,365.06 |
| 19 | 8 | $81.78 | $1,336.33 | $22,028.72 |
| 19 | 9 | $77.10 | $1,341.01 | $20,687.71 |
| 19 | 10 | $72.41 | $1,345.71 | $19,342.01 |
| 19 | 11 | $67.70 | $1,350.42 | $17,991.59 |
| 19 | 12 | $62.97 | $1,355.14 | $16,636.45 |
| Year 19 | $1,063.99 | $15,953.36 | $16,636.45 | |
| 20 | 1 | $58.23 | $1,359.89 | $15,276.56 |
| 20 | 2 | $53.47 | $1,364.64 | $13,911.92 |
| 20 | 3 | $48.69 | $1,369.42 | $12,542.50 |
| 20 | 4 | $43.90 | $1,374.21 | $11,168.28 |
| 20 | 5 | $39.09 | $1,379.02 | $9,789.26 |
| 20 | 6 | $34.26 | $1,383.85 | $8,405.41 |
| 20 | 7 | $29.42 | $1,388.69 | $7,016.72 |
| 20 | 8 | $24.56 | $1,393.55 | $5,623.16 |
| 20 | 9 | $19.68 | $1,398.43 | $4,224.73 |
| 20 | 10 | $14.79 | $1,403.33 | $2,821.40 |
| 20 | 11 | $9.87 | $1,408.24 | $1,413.17 |
| 20 | 12 | $4.95 | $1,413.17 | $0.00 |
| Year 20 | $380.90 | $16,636.45 | $0.00 | |
The Benefits of Choosing 20-year Fixed-rate Mortgages
Ready to buy a house? When you apply for a home loan, you’ll find that lending institutions offer a variety of mortgage products. Besides having ample income, a good credit score, and down payment, you must find a deal with the most favorable rate and term.
For decades, the 30-year fixed-rate loan has been the prevailing mortgage product in the U.S. The affordable monthly payments make it more popular than shorter terms. In general, more people take fixed-rate mortgages (FRM) than adjustable-rate mortgages (ARM) for the stability of predictable payments.
On the other hand, the 15-year fixed-rate loan is a common refinancing option for borrowers. This lets you pay your mortgage early while saving on interest charges. However, not everyone can afford its expensive monthly payments. And for new home purchases, a borrower would only qualify for a smaller loan amount with a 15-year fixed mortgage compared to a 30-year fixed term.
This is where the 20-year fixed mortgage is beneficial. Instead of the full 30-years, you can pay your loan earlier with a 20-year term. In this article, we’ll explain how 20-year fixed mortgages work and how they compare with 30-year and 15-year fixed-rate loans. We’ll discuss why this option is worth considering and how it can help boost your mortgage savings.
The Fundamentals of 20-Year Fixed-rate Mortgages
20-year fixed-rate mortgages (FRM) are characterized by a locked interest rate for the rest of the 20-year term. This means your monthly principal and interest payments remain the same even if market rates change. The predictable payments make it easier to plan your budget. It also guarantees you won’t deal with drastic payment increases throughout the life of the loan.
Loans with a fixed-rate structure follow a traditional amortization schedule. This is a schedule that shows the exact number of payments you need to make within the term. For a 20-year FRM, payments are distributed across 240 payments for 20 years. It also breaks down how much of each payment goes toward your principal and interest costs.
- Principal: This is the loan amount you borrowed from your lender. It indicates the amount you still owe to clear your debt. Your lender decides the approved loan amount depending on your income, debts, and the strength of your credit profile.
- Interest: This is the amount lending institutions charge to make loans serviceable. It’s based on an interest rate that takes a percentage of the principal. When you have a higher principal amount, it accrues larger overall interest costs. Interest charges are also higher when you take longer to pay down your mortgage.
You can use the above calculator to generate a sample amortization schedule.
To know your full monthly mortgage payment, you must add the following housing-related costs to your principal and interest payments:
- Property taxes
- Homeowner’s insurance
- Private mortgage insurance, if required
- Homeowner’s associate dues (HOA)
- Maintenance and repair costs
How are mortgage payments distributed? For traditional amortizing loans, a greater portion of your monthly payments go toward the interest during the first years of the mortgage. This diminishes your principal debt at a slow pace. But toward the latter years of your loan term, you’ll notice a larger portion of your payments going toward the principal. As the principal further diminishes, it results in smaller interest payments. As long as you make payments as scheduled, your loan should be paid within 20 years.
How Popular are 20-year Fixed-rate Loans?
20-year FRMs do not take a large portion of the housing market. Since shorter terms require higher monthly payments, it’s not a popular choice for homebuyers. As mentioned, the most widely purchased U.S. mortgage is the 30-year FRM. And while the 20-year FRM is a good refinancing option, more borrowers generally refinance from a 30-year FRM into a 15-year FRM. On a positive note, the 20-year FRM provides a more affordable alternative to the 15-year FRM.
The following survey shows the market share of different types of mortgages for new loan originations in October 2020. The data is sourced from the December 2020 Urban Institute Housing Finance at a Glance: Monthly Chartbook.
| Type of Mortgage | Market Share in Oct. 2020 |
|---|---|
| 30-year FRM | 74.2% |
| 15-year FRM | 16.9% |
| ARM | 0.9% |
| Other (10-year & 20-year FRMs, etc.) | 8% |
The chart shows that 30-year FRMs accounted for 74.2% of new mortgage originations in October 2020. This was followed by 15-year FRMs at 16.9% market share. The Urban Institute emphasizes that the 15-year FRM is predominantly a refinancing product.
In October 2019, the market share for 15-year FRMs was only at 10.1%, which showed a dramatic increase in 2020. This refinancing boom was caused by historic low rates. Because of the COVID-19 crisis, the Federal Reserve announced it will keep the benchmark rate near zero to encourage market liquidity.
ARMs, on the other hand, comprised 0.9% of the market. It’s significantly lower compared to previous years because of the record low rates. Finally, the remaining 8% of the market share accounted for other types of mortgage products, including the 20-year FRM.
Comparing 20-year FRM with Other Loan Terms
Since a 20-year FRM is shorter than a 30-year FRM, it comes with a lower interest rate. For example, in January 28, 2021, the average APR for a 30-year FRM is 3.170% APR, while the 20-year FRM rate is slightly lower at 3.030% APR. Shorter terms also generate lower overall interest charges. As a drawback, however, expect your monthly payments to be higher with a 20-year FRM. That’s the compromise you make for paying your loan earlier than 30 years.
The 20-year FRM is a viable alternative to the 15-year FRM. While the 15-year FRM comes with a much lower interest rate, it requires much higher monthly payments than a 20-year FRM. Thus, borrowers should consider taking a 20-year FRM for home purchases or refinancing. It provides a middle ground if you cannot afford a 15-year FRM, but don’t want to get stuck with 30-year FRM.
The following chart shows interest rates for different types of mortgages as of January 28, 2021:
| Mortgage | Rate (APR) |
|---|---|
| 30-year fixed | 3.17% |
| 20-year fixed | 3.03% |
| 15-year fixed | 2.69% |
| 10-year fixed | 2.60% |
| 5/1 ARM | 4.00% |
In low interest rate environments, borrowers typically prefer the certainty of fixed-rate loans over adjustable-rate mortgages (ARM). Meanwhile, in high or rising interest rate environments, borrowers may see a larger relative discount in ARM loans which can help shift their preference across. When this happens, ARM introductory rates are lower compared to fixed-rate loans. However, in the above chart, the ARM rate is significantly higher than fixed-rate loans.
Currently, interest rates across the global economy are near 5,000 year lows. Thus, most homebuyers try to lock in fixed rates for predictable payments over the longest duration possible—which is a 30-year FRM.
Homeowners who take a 30-year FRM build home equity and eventually build higher income. They also realize that 30 years is too long to be paying for a home. To pay their mortgage earlier, some borrowers opt to refinance into a shorter term.
When people refinance, they commonly choose a 15-year FRM, though 10-year and 20-year options are also available. To understand how loan terms impact your mortgage costs, refer to the chart below.
The following chart compares rates, monthly principal and interest payments (P&I), and total interest costs for a $260,000 mortgage. These payments presume a 20% down payment to bypass private mortgage insurance. It also does not include escrow costs such as real estate taxes, homeowner’s insurance, and HOA fees.
Loan Amount: $260,000
| Loan Term | 10-YR FRM | 15-YR FRM | 20-YR FRM | 30-YR FRM |
|---|---|---|---|---|
| Rate (APR) | 2.60% | 2.69% | 3.03% | 3.17% |
| Monthly P&I Payment | $2,462.86 | $1,757.00 | $1,445.86 | $1,120.15 |
| Total Interest Cost | $35,543.01 | $56,260.46 | $87,006.77 | $143,254.76 |
The chart shows that the longer the loan term, the higher the interest rate. Longer terms incur higher duration risk for lenders since there’s greater chances for borrowers to default. Money also loses value over time due to inflation. Thus, lenders assign much higher rates to longer terms.
Meanwhile, the longest term comes with the lowest monthly P&I payment, whereas the shortest term has the most expensive monthly payment. In this example, the 30-year FRM has a monthly P&I payment at $1,120.15, while the 10-year FRM P&I payment is at $2,462.86. The 20-year FRM has a monthly P&I at $1,445.86, which is $325.71 higher than the 30-year FRM. And if you choose the 15-year FRM, your monthly P&I will be $1,757.00, which is more expensive by $636.85 than the 30-year FRM.
In this scenario, if you can’t afford the monthly payments for a 15-year FRM, consider refinancing to a 20-year FRM instead. A $325.71 increase in your monthly payments may better fit into your budget.
The Fundamentals of Refinancing
Borrowers with an existing mortgage can secure a more favorable rate and term through mortgage refinancing. This process essentially replaces your current mortgage with a new loan. Maybe you got a higher rate when you took your mortgage a few years ago. If you refinance your loan, you can obtain a lower rate and shorten your term to increase your savings. Refinancing is a good idea when general market rates fall and if you’re settling long-term in your house.
Other borrowers also refinance to shift from a government-backed loan into a conventional mortgage. This allows them to eliminate mortgage insurance premium in FHA loans. Moreover, some borrowers may refinance from an adjustable-rate loan to a fixed-rate mortgage to lock in a favorable rate. Others may even opt to cash-out money from the refinance once they they’ve built enough equity in their home.
Though refinancing has many benefits, it comes with strict requirements. To be eligible, you must have a credit score of at least 620. Since borrowers with higher credit rating obtain a lower rate, it makes sense to improve your credit score to 700 and up. You must also consider the expensive closing costs, which is usually around 3% to 6% of your principal.
For example, if your loan is $200,000, your closing costs will fall somewhere between $6,000 to $12,000. To justify this large cost, financial advisors urge borrowers to refinance to a much lower rate. Try to refinance 1% to 2% lower than your original rate. This will help you break even sooner on the cost of refinancing.
Adverse Market Refinance Fee
The COVID-19 pandemic pushed the world economy into a recession in 2020. Government-sponsored entities (GSE) Fannie Mae and Freddie, which guarantees around 70% of all U.S. mortgages, lost approximately $6 billion because of the crisis. As a result, they required mortgage originators to charge a 50 basis point adverse market refinance fee. The fee was officially required on December 1, 2020. Borrowers with mortgage balances lower or equal to $125,000 are excused from this fee, including FHA and VA refinances. Consider this extra cost before refinancing.
Loan Options with 20-year Fixed Mortgages
Borrowers can obtain 15-year FRMs from conventional loan lenders and government-sponsored lenders.
Conventional Mortgages
Conventional loans are a category of mortgages that are not directly funded by the government. These loans are typically packaged into mortgage-backed securities by Fannie Mae and Freddie Mac. Nearly 70% of all U.S. homebuyers use conventional loans to finance home purchases. Borrowers can apply for conventional loans at banks, credit unions, and mortgage companies.
To qualify for a conventional mortgage, borrowers should ideally have a credit score of 680 and higher. Though conventional lenders may approve a low credit score of 620, the borrower receives a higher interest rate. In contrast, borrowers with credit scores of 700 and above are offered competitive rates. Conventional loans are usually taken by homebuyers with stable incomes, high credit scores, and good financial records. Borrowers can obtain two types of conventional loans: conforming conventional mortgages and non-conforming conventional loans.
Furthermore, you’re required to pay private mortgage insurance (PMI) when your down payment is below 20% of your home’s price. This is an added cost meant to protect your lender in the event you fail to pay back your loan. PMI is usually rolled into your mortgage payments, which costs around 0.25% to 2% of your loan annually. It’s required for a limited time and is canceled once you gain 22% equity of your home (78% loan-to-value ratio).
Two Types of Conventional Mortgages
Conforming Conventional Loans: These are loans that fall within the loan limits set by the Federal Finance Housing Agency (FHFA). Fannie Mae and Freddie Mac strictly refer to these limits before approving loans. For example, let’s say the baseline conforming limit in your area is $647,200. If your loan is below or equal to this amount, your loan is secured as a conventional mortgage. For designated high-cost areas, the limit is 50% higher than the baseline limit. To see a complete list of current loan limits, visit the FHFA website.
Non-conforming Conventional Loans: Also called jumbo mortgages, non-conforming conventional loans exceed loan limits required by the FHFA. These are mortgages that cannot be bought, guaranteed, or securitized by Fannie Mae and Freddie Mac. Because of the large loan amount, jumbo mortgages are used by high-income homebuyers looking to purchase expensive property. To qualify for a jumbo loan, you must have a credit score of 700 and higher. Expect jumbo mortgage lenders to require more stringent credit qualifications than conforming conventional loans.
Government-backed Mortgages
Sometimes, homebuyers may find it difficult to qualify for a conventional loan. When this happens, they can turn to mortgages that are directly funded by the government. These financing options are geared toward low to moderate income consumers, providing low down payment options and lenient credit standards. If you have a low credit score and you’re still building your income, these loan options might work for you.
- The Federal Housing Administration backs FHA loans
- The U.S. Department of Veteran Affairs backs VA loans
- The U.S. Department of Agriculture backs USDA loans
Borrowers can qualify for an FHA loan with a minimum credit score of 500. But as a condition, you must make a down payment of at least 10% to secure your mortgage. Meanwhile, borrowers with a credit score of 580 can make a down payment as low as 3.5%.
However, note FHA loans charge mortgage insurance premium (MIP). This is an extra fee that’s meant to protect your lender in case you default on your loan. MIP is paid both as an upfront fee and annual fee. The upfront fee costs 1.75% of the loan, while the annual fee typically costs 0.85% of the loan amount per year. MIP is usually required for the entire duration of an FHA loan.
Next, both VA loans and USDA loans do not require a down payment for qualifying borrowers. This means they can provide 100% financing for your home. VA loans are exclusively provided for active military, veterans, and qualified military spouses. While it has flexible credit requirements, most VA-sponsored lenders prefer a credit score of 620 and above. VA loans do not require MIP, but charge a VA funding fee to compensate for U.S. taxpayers’ money. This cost depends on your loan amount, down payment, and how many times you’ve used your VA benefit.
Meanwhile, USDA loans are only eligible for homes in USDA rural areas. Borrowers must have a credit score of at least 640 to secure the loan. Those with lower credit scores may still be approved, but it will entail manual underwriting which takes longer to process.
USDA loans also impose income limits. To qualify, your household income should not exceed 115% of the median family income in your area. USDA loans also charge a guarantee fee which is paid as an upfront and annual fee. The upfront guarantee fee is 1% of the loan amount, while the annual guarantee fee is 0.35% of the loan amount. The USDA guarantee fee is required for the entire life of the loan.
Why You Should Consider a 20-year Fixed-rate Term
The main advantage of taking a 20-year FRM is paying your mortgage early. While the 30-year FRM is the norm, three decades is a long time to pay for a house. For example, if you took your mortgage at the age of 35, you’ll be 65 years old by the time your mortgage is paid off. And for people who buy a house in their 40s, that means paying their mortgage until their 70s.
Unless you refinance or make extra payments to shorten your term, you’ll be worrying about housing debt well into retirement. If you cannot refinance into a 15-year FRM, consider a 20-year FRM. Some borrowers consider refinancing into a 20-year term, after 3 years, once they are eligible to refinance.
On the other hand, if you take a 20-year FRM at the age of 35, you’ll pay off your mortgage by the time you turn 55. You’ll have peace of mind knowing your major debt is paid off before retirement. The 20-year FRM is also a good option if you cannot afford to refinance into a 15-year FRM. Though the 20-year FRM is not as short as the 15-year FRM, it comes with more affordable monthly payments. This might better fit your budget, allowing you to pay your loan sooner. It will also save you considerable interest costs, which is money that can go to more important expenses.
Paying your mortgage early will eventually free up your cash flow. Without major debt on your shoulders, you can focus on putting more cash towards your emergency funds and retirement account. You can also save substantial funds to prepare for your child’s college education. Because you have more purchasing power, you can also invest in worthwhile business ventures once you’ve paid off your mortgage.
Think of the Drawbacks
When you take a shorter term, your monthly payments will be higher. This is the reason why most homebuyers opt for 30-year FRMs. And if you’re a first-time homebuyer with limited income, the longer term is a good trade-off for cheaper monthly payments (at least for the meantime). You may also be discouraged to take a 20-year FRM because it means qualifying for a lower loan amount compared to a 30-year FRM. However, compared to a 15-year FRM, you’ll certainly qualify for a larger loan amount.
Moreover, since your monthly payments are more expensive, you’ll have less room in your budget for savings. It also limits your purchasing power, so you can’t focus on other important expenses. Lastly, it means passing up on the opportunity to make profitable investments while you’re focusing on mortgage payments.
Before you decide to make higher mortgage payments, assess your financial disposition. Perhaps you have a baby on the way and you’re prioritizing childcare services. Maybe you have high-interest credit card debt you need to pay first. These are primary expenses you should focus on, rather than making higher mortgage payments.
To summarize the benefits and disadvantages of 20-year FRMs, we created the table below:
| Pros | Cons |
|---|---|
| Affordable monthly mortgage payments compared to 15-year FRMs. | Higher monthly payments compared to 30-year FRMs. |
| Comes with slightly lower interest rate than a 30-year FRM. | Comes with a higher interest rate than a 15-year FRM. |
| Save more on interest costs compared to a 30-year FRM. | Saves less on interest costs compared to a 15-year FRM. |
| Pays your mortgage 10 years earlier than a 30-year FRM. | Not as short as a 15-year FRM which pays a 30-year FRM in half the time. |
| Lets borrowers qualify for a larger loan amount compared to a 15-year FRM. | You’ll qualify for a smaller loan amount compared to a 30-year FRM. |
| Paying your mortgage early frees up your cash flow. | While making high mortgage payments, you have less money toward savings and other important expenses. |
Comparing 20-year FRM with a 30-year FRM
How much can you save if you choose a 20-year FRM? The following example presumes you bought a house worth $325,000 and made a 20% down payment of $65,000. It compares the monthly principal and interest payment and total interest costs between a 20-year FRM and a 30-year FRM. The calculation does not include property taxes, homeowner’s insurance, and other escrow costs.
House Price: $325,000
Down Payment: $65,000
Loan Amount: $260,000
| Loan Details | 30-year FRM | 20-Year FRM | Difference |
|---|---|---|---|
| Rate (APR) | 3.725% | 3.628% | 0.097% |
| Monthly P&I payment | $1,200.42 | $1,525.05 | $324.63 |
| Total Interest Costs | $172,149.46 | $106,012.61 | $66,136.85 |
According to the example, the 20-year FRM has a monthly P&I payment of $1,525.05. This is higher by $324.63 than the 30-year FRM, which has a monthly P&I payment of $1,200.42. In this situation, consider if you can afford an extra $324.63 to your monthly payments. If your budget leaves you with enough room for other expenses, then taking a 20-year FRM can work for you.
If you take the 20-year FRM, you’ll save a substantial amount on interest costs. In this example, a 30-year FRM generates $172,149.46 in total interest charges. Meanwhile, a 20-year FRM only costs $106,012.61 in overall interest costs. Thus, choosing the 20-year FRM will save you $66,136.85 over the life of your loan.
The Advantage of Extra Mortgage Payments
Depending on your situation, you may not afford a 20-year FRM. Others are also discouraged to refinance because of the expensive closing costs. If this is the case, you can opt to make extra mortgage payments on your 30-year FRM.
Making small additional payments of $50 to $100 can significantly reduce your principal, especially during the early years of your mortgage. It’s also more flexible than committing to a higher monthly payment. You decide how much extra you can put toward your loan. Though it won’t cut 10 years off your mortgage, it can definitely shorten your term by a couple of years. The higher extra payments you make, the sooner you’ll pay off your mortgage.
Beware of Prepayment Penalty
Before you make extra payments, make sure to ask about prepayment penalty. This is an extra charge imposed by lenders to dissuade borrowers from prepaying, selling, or refinancing their loan early. The penalty period usually lasts for the first three years of the mortgage. It’s an expensive fee, costing around 1% to 2% of your loan amount. This can offset any savings you make from extra payments.
Lenders may allow you to prepay up to a certain percentage of your principal before triggering the penalty fee. But to be safe, you can elect to make additional payments after the penalty period. If you’re still shopping for a mortgage, you can obtain a conventional loan without a prepayment penalty clause. Government-backed mortgages also do not enforce prepayment penalty charges.
In Summary
The 20-year fixed rate mortgage is a viable option for homebuyers who cannot afford a 15-year fixed term. While it’s used as a loan purchase tool, it’s also a viable refinancing option that shortens your term and helps save interest costs. 20-year fixed mortgages have more affordable monthly payments than 15-year and 10-year fixed-rate loans. Though it’s not as short, it still offers substantial mortgage savings. It also comes with a slightly lower rate than 30-year FRMs
Consider paying your mortgage early if you have room in your budget. This way, you don’t have to worry about mortgage payments during retirement. It also frees up your cash flow, which allows you to focus on setting aside money for your retirement fund. You can pay your mortgage early by refinancing into a shorter term, such as a 20-year fixed mortgage, or making extra payments on your loan. Borrowers consider these prepayment strategies after three years into the loan to avoid costly prepayment penalty fees.
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