Updating your mortgage could save you a lot of money. The common 30-year mortgage option offers the lowest monthly payment. And a 15-year mortgage option is a more aggressive route, taking years off of your payment schedule. But a 20-year mortgage may be the best option today, combining aspects of the two. 

Lower Interest Rates
One of the more appealing aspects of a 20-year loan is the lower interest rate, about .25% lower than those of 30-year loans. While it may seem a small number, look at the overall amount of money that could save you: if a homeowner has a 20-year fixed loan for $300,000 with a 4% interest rate, they will save almost $95,000 in interest throughout the lifespan of the loan, compared with a 30-year fixed mortgage rate (at 4.25%).  

More Practical Monthly Payments
And 15-year mortgages may be tempting when you’re refinancing, but keep in mind that payments are higher.  Jered Helton, vice president of the Oregon Mortgage Bankers Association, gives an example: “On a $200,000 loan, the difference between a 20- and 15-year loan would be about $190 a month. For most people, that would impact their housing budget, and they might not be able to pay that extra $190.”

Savings like this are helpful for those who cannot afford the payments of a 15-year loan in a shorter amount of time than a 30-year one, helping homeowners attain financial goals more quickly.

Veronica Ondrejech, president of the Central Coast chapter of the California Association of Mortgage Professionals, says,  “If they can pay that extra $300 a month for a lower interest rate in the 3’s, that could sway them to refinance and pay off a loan in 20 years instead of 30.”

Making Sure It’s Right for You

20-year mortgages may be right for you if you can manage to pay close to the same amount as payments on a 30-year loan. But creating a budget can help you plan for a future change in your mortgage. And, of course, doing the proper amount of research to determine whether a loan meets your specific needs is equally as important.

Article Citation: Moton, Tony. (April 25, 2014.) Mortgage option no one considers, but should. Yahoo! Homes. Retrieved on May 28, 2014 from: https://homes.yahoo.com/news/20-year-mortgage-best-option-181122669.html.
Picture Citation: http://www.100percentrealtors.com/category/mortgage-news