The most popular mortgage is the 30-year mortgage, but that doesn’t mean it’s the best mortgage for everyone. If you want to pay off your home loan sooner — and can afford higher monthly payments — you might consider shorter loan terms, such as 15 or 20 years. 

A 20-year mortgage usually offers a lower interest rate than a 30-year mortgage and can save borrowers a significant amount of money in interest payments over time. Learn how a 20-year mortgage compares with other mortgage terms and how to find the best rates available.

The mortgage rates for a 20-year mortgage are usually slightly lower than what you’d get with a 30-year mortgage. In general, the longer your loan term is, the greater the risk for the lender. The interest rate will be higher to offset the risk the lender is taking.

With a 20-year mortgage, you’ll get a slightly lower interest rate. Even with the lower interest rate, your monthly payment will still be higher than with a 30-year mortgage because you’re paying off the loan over a shorter period of time. Still, you can save a significant amount of money over the life of the loan with a 20-year mortgage.

For example: Say you want to buy a house that costs $400,000 using a 30-year loan. You put down 20%, which is $80,000, giving you a loan amount of $320,000. With an interest rate of 7.6%, your monthly payment would be around $2,259 for principal and interest. After 30 years, you’ll have paid $493,398.10 in interest alone. With a 20-year loan that has a slightly lower interest rate of 7.4%, you can expect to have a monthly payment of about $2,558 and would pay $294,008.03 in interest. In this case, if you can pay $299 more per month, you could save $199,390.07. 

Rates for 20-year mortgages are typically close to 30-year mortgages. If rates rise or fall for 30-year mortgages, the same usually goes for 15- and 20-year mortgages. Statista, a global data platform, predicts the 30-year, fixed-rate mortgage to drop to 5.4% by 2026. In the near future, the Federal Reserve Board members announced after their July meeting that they're likely to consider a rate cut at their September meeting.

The average mortgage rate isn’t necessarily the rate you’ll get when you apply for a loan. Lenders consider your borrower profile as well. Some factors mortgage lenders consider include the following:

• Credit score: Typically, the higher your credit score the lower your interest rate. Many lenders use your FICO score to help determine your interest rate. A FICO score of 800 or higher is considered exceptional credit; very good is 740-799; good is 670-739; fair is 580-669; and poor is below 580. You’ll likely get better rates if your score is 670 or higher. 
• Debt-to-income ratio (DTI): Lenders look at how much debt you have compared with your income. You can determine your DTI by adding all your monthly expenses (including the mortgage payment) and dividing that by your gross monthly income. Most lenders consider a DTI below 36% good. Some loan programs, such as FHA loans, allow a DTI of up to 50%.
• Location of the home: Interest rates can vary based on where you want to buy. This tool from the Consumer Financial Protection Bureau tells you the average interest rate lenders are offering by state. 
• Down payment: Typically, the larger your down payment, the lower your interest rate will be. If you have more equity in the home, it makes the loan less risky for the lender.
• Loan type: There are different categories of mortgage loans: conventional, government, and special program. A conventional loan is any loan not insured by the government. A government loan could be an FHA, VA, or USDA loan. Special program loans can be offered by state and local agencies or private lenders to encourage borrowers to buy homes in targeted areas. Each loan type could come with different mortgage rates based on whether it’s backed by a private company, the federal government, or a local agency.

Because the interest rate you get affects your overall mortgage payment, it pays to find the best rate. Here are some tips to help you find lower interest rates: 

• Shop at least three different lenders and compare: Request pre-approval from a few different lenders and look at interest rates, terms, and lender fees. Your credit score will dip by a few points when you first apply for pre-approval, but if you submit all of your requests within 45 days of each other, your score won’t be lowered for the additional credit inquiries.
• Compare the different loan products available to you: The interest rate is important, but there are other features that could make one type of loan more or less attractive, such as the required down payment, whether you must pay mortgage insurance, amount of lender fees, and how much closing costs will be.
• Consider buying discount points. This allows you to pay some of the interest upfront. One discount point equals 1% of the loan amount. On a $320,000 loan, for example, you’d pay $3,200 for a discount point. You can typically expect one point to lower your interest rate by 0.25%.

There are several advantages of a 20-year mortgage:

• Lower interest rate: Interest rates are typically lower with a 20-year mortgage compared with a 30-year mortgage.
• Rate lock in: A 20-year mortgage is a fixed-rate loan, meaning your interest rate won’t change (unless you refinance).
• Saves you money: Because the term of a 20-year mortgage is 10 years shorter than a standard 30-year mortgage, you save a significant amount of money in interest payments over time.
• Become a homeowner sooner: Owning your home free and clear happens after 20 years instead of 30.

These are the downsides to consider when shopping for a 20-year mortgage:

• Higher monthly payments: Since the term length is shorter than a 30-year mortgage you’ll be required to put more money toward your house each month. This can add a financial strain if you have a lower income and/or other significant expenses to factor in.
• Not the fastest option: If you’re trying to pay off your mortgage sooner or build equity quicker, a shorter term will help you achieve those goals. While a 20-year loan allows you to pay off your home sooner than if the term was 30 years, you’ll still be paying for longer — and paying more interest — than you would with a 15-year mortgage.

Mortgage rates are constantly changing in response to influences from the market and global economy. The average mortgage rates for a 20-year loan typically change to mirror the average mortgage rates for a 30-year loan. If you take out a 20-year fixed-rate mortgage loan, your rate will stay the same for the life of the loan, though your monthly payment might fluctuate if your homeowners insurance or property taxes change.

Your interest rate with a 20-year fixed-rate mortgage never changes. If rates rise, you benefit because your rate stays the same. If rates drop, you’d need to refinance the loan to get the lower rate. The rate you get with an ARM changes as long as you have the loan. As such, your mortgage payments will fluctuate as well. There are different types of ARMs with terms that dictate when and how often your rate can change.

It’s possible to refinance your mortgage to a 20-year term if rates have dropped or you’re in a better financial position and qualify for a lower rate. If you can get an interest rate that is at least 1% lower than your current rate, you might want to refinance. You’ll have to pay closing costs when you refinance, so make sure you’ll be saving more than you spend. Freddie Mac estimates the average refinance closing costs are about $5,000, but it can vary.

Typically, 20-year mortgage rates are lower, not higher, than 30-year rates. The shorter the loan term, the less risk you present to lenders.

A FICO credit score of 800 and above puts you in the exceptional category, meaning you could get the best rates possible. Some lenders could offer homebuyers in the very good category a better rate as well. Lenders consider other factors besides just credit score when determining your interest rate, such as how much debt you have compared to your income (your DTI), location of the home, down payment, and loan type.

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