20-Year vs 30-year Mortgages

By Alene Laney · March 02, 2023 · 5 minute read

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20-Year vs 30-year Mortgages

A 20-year mortgage is far less common than a 30-year mortgage, but when you want to pay a lower rate and save a substantial amount in interest, it’s worth considering a 20-year mortgage … with a big “if.”

If you can consistently afford the higher mortgage payments.

Here’s what you need to know about 20-year mortgages:

•   What is a 20-year mortgage?

•   How a 20-year mortgage compares with a 30-year mortgage.

•   Why people choose a 20-year mortgage?

•   The advantages and disadvantages of a 20-year mortgage.

What Is a 20-Year Mortgage?

A 20-year fixed-rate mortgage is a home loan whose total financing costs are calculated on a repayment term of 20 years.

Homebuyers and refinancers choose their mortgage term. The 30-year fixed-rate mortgage is the most popular. The 15-year fixed-rate mortgage sometimes shares the spotlight.

The 20-year mortgage merely gets less attention. A 20-year home loan may be a happy medium for homeowners who want lower monthly payments than a 15-year mortgage but who want to pay off the loan more quickly than 30 years.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Why Are 20-Year Mortgages Less Common Than 30-Year Mortgages?

When it comes to a 20-year vs. 30-year mortgage, why don’t more borrowers choose the shorter term? Because the monthly payments are higher.

A 30-year term makes a home more affordable on a monthly basis, even though homeowners will pay more over the life of the loan than they would over 20 years.

Buyers considering a 20-year home loan may need to lower the top end of their house-hunting price range so they can qualify for the mortgage.

In exchange for saving an awesome amount by financing with a 20-year loan, you may have to forgo HGTV-style perfection or buy a starter home.

Or downsize.

Recommended: How Much of a Mortgage Can I Afford?

Why People Choose 20-Year Mortgages

People who choose a 20-year mortgage do so because they will pay much less in interest than they would on a 30-year mortgage. That benefit stems from a shorter term and a lower interest rate.

Generally, the longer the term, the higher the rate on conventional conforming loans, FHA and VA loans, and jumbo loans.

An amortization table reveals how much interest is paid on a mortgage over the loan term. When you decrease the length of your mortgage in exchange for a higher monthly payment, the savings are substantial.

20-Year Mortgage

30-Year Mortgage

Loan amount $500,000 $500,000
Fixed interest rate 6.0% 6.25%
Monthly payment (principal & interest) $3,582 $3,079
Total interest paid $359,752 $608,289
Total paid (loan amount + interest) $859,752 $1,108,289
Amount saved $248,537

It might be shocking to see nearly $250,000 in interest savings by financing a home with a 20-year mortgage.

If you can swing it, good deal! Keep in mind, though, whether you’re a millennial homebuyer or retiree, that a 30-year mortgage may give you wiggle room with your budget if you need it.

You can always pay off a 30-year mortgage early if you make extra payments, especially toward the principal.

20-Year Fixed vs an ARM

In a time of rising rates, an adjustable-rate mortgage (ARM) may look good to a homebuyer who’s planning to stay put for just a few years. The introductory rate for a conventional ARM, jumbo ARM, or FHA or VA ARM may be lower than that of a fixed-rate mortgage.

Whether you’re interested in a 5/1 ARM, whose rate is fixed for five years and then will adjust once a year, a seven- or 10-year ARM, or any other adjustable-rate loan, you’ll want to know how long you plan to stay in the home and to fully understand the rate adjustments and caps.

Recommended: Online Mortgage Payment Calculator

Advantages of a 20-Year Mortgage

Fixed payments over 20 years: Your payment will be the same each month for the life of the loan.

Lower interest rate: 20-year mortgages typically have a lower interest rate than their 30-year counterparts. Lenders reward a shorter payoff date with a lower interest rate.

Pay less interest over 20 years: You’ll avoid 10 years of interest by paying on a 20-year loan instead of a 30-year loan.

Pay off mortgage sooner: A 20-year mortgage is scheduled to be paid off 10 years sooner than a 30-year mortgage.

Build equity more quickly: Equity is built faster with a 20-year loan than a 30-year loan. The sooner you can pay more on principal (which a 20-year loan naturally does), the sooner you’ll gain home equity.

Monthly payments still may be affordable: You may find that the payments for a 20-year loan are comfortable and doable.

Disadvantages of a 20-Year Mortgage

Higher monthly payment: A 20-year vs. a 30-year mortgage will result in a higher monthly payment. This may make it more difficult to qualify for other financing, such as investment property or cars.

Harder to qualify for: Because the monthly payments are higher, a 20-year home loan may be harder to qualify for than a 30-year loan.

Lower target price: If you’re in the home buying process and want to finance your new purchase with a 20-year loan, you may need to shop for a home at a lower price point.

Recommended: Buying in One of the 50 Most Popular Suburbs

The Takeaway

If you’re looking for a home loan that could save you a significant amount of money in interest, a 20-year mortgage might be right for you — if you can handle the higher monthly payments without fail. If you need lower monthly payments, a 30-year mortgage may be the better move.

SoFi offers fixed-rate mortgages with terms of 10, 15, 20, and 30 years. Low down payment options and competitive rates are just some of the advantages of SoFi Home Mortgage Loans.

Find your rate in minutes.


20-year mortgage vs 30-year mortgage: Which has the better interest rate?

Decreasing the amount of time you repay your loan will help you save on interest costs in a big way. First off, the interest rate you’ll pay is typically lower. Second, your overall interest cost is much lower because you’re avoiding 10 years of interest that you would pay on a 30-year loan.

Is it harder to get a 20-year or 30-year mortgage?

A 20-year mortgage is harder to qualify for because the monthly payments will be higher for the property you want to purchase. If you’re determined to use a 20-year loan, you may find you’ll qualify for a lower purchase amount to get the numbers to work for your monthly budget.

Photo credit: iStock/ArLawKa AungTun

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