How a 20-year home mortgage can save you moneyHow a 20-year home mortgage can save you money https://www.govellum.com/lo/wp-content/uploads/2019/09/article_20yearmortgage-1024x536.png 1024 536 nathanburch https://secure.gravatar.com/avatar/7edec9e631ff69dc97b2554380227ed1?s=96&d=mm&r=g
The 30-year fixed-rate home mortgage dominates the housing market, particularly for first-time buyers who appreciate the ability to extend their home loan payments for the longest possible term.
The second most common fixed-rate loan term is 15 years, but many lenders also offer loan terms of 10 or 20 years. Sometimes lenders even offer a personalized term chosen by the borrower.
On average, a person will save a significant amount of interest when either purchasing or refinancing into a 20-year mortgage compared to a 30-year. Here are four reasons to consider a 20-year mortgage:
- Save on interest:
The most obvious reason is that the interest rate of a 20-year mortgage is typically one-fourth of one point to three-eighths of one point lower than a 30-year fixed mortgage. This means, on an average, a person will save a significant amount of interest when either purchasing or refinancing into a 20-year mortgage compared to a 30-year. Because of a shorter loan term and a lower interest rate, on a $280,000 loan amount, a borrower can save approximately $85,000 in interest over the life of the loan.
- Pay off the loan faster:
When a borrower is refinancing to get a lower interest rate, instead of taking their original 30-year mortgage and refinancing it into another 30-year mortgage, they’re able to take their original 30-year mortgage and refinance into a 20-year mortgage, which would potentially keep them on their payoff goal. Thus, they don’t have to start all over with a new 30-year mortgage.
- Match the payoff to retirement goals:
Let’s say a borrower is in their late 30s or 40s and their retirement plan is to retire in their 60s. Applying for a 30-year mortgage would push their potential payoff of their house into their 70s. Choosing a 20-year mortgage would keep them potentially on track for having their house paid off in their 60s.
- Affordable payments:
A 20-year mortgage is a good alternative to a 15-year mortgage, as many home buyers can’t stretch their budget to make the higher payments required to pay off a mortgage in 15 years, but yet they want to pay off the home faster. The borrower is still paying off the loan in 10 years less than a 30-year mortgage, and if the borrower ever wanted to, they have the ability to make extra payments.
Speaking with a Vellum mortgage professional will ensure that you obtain the mortgage that’s right for your story.
Source: Washington Post