A 20-year fixed rate mortgage is a home loan that has the same interest rate over a 20-year term. Though it’s not as common as the 30-year FRM or the 15-year FRM, it can be a good middle-ground for borrowers who want a low monthly payment but would prefer to pay less interest over the life of the loan.
One of the major advantages of the 20-year FRM (and all fixed rate mortgages) is that you’ll lock in one consistent interest rate over the course of your home loan. This prevents you from having to pay more interest if the rate goes up, as it tends to do with an adjustable-rate mortgage.
Is a 20-Year Fixed Rate Mortgage (FRM) Right for Me?
Certain types of homeowners are more likely to enjoy the benefits of a 20-year FRM than others. If some or all of the following characteristics describe you, the 20-year fixed rate mortgage may be a home loan product worth looking into:
- You like to budget carefully.
- You want something that “meets you halfway” between the extremes offered by the 30-year FRM and the 15-year FRM (you want to pay a lower amount of interest than you’d pay with a 30-year FRM, but you’d like your monthly payments to be lower than they’d be with the 15-year FRM).
- You plan to stay in your home for at least a few years.
- You can afford a large down payment
- You have a reliable source of income
While the 20-year FRM can be a nice middle ground between the more popular 15-year and 30-year options, it has its downsides, too. First, unless you’re able to get off to a good start with a hefty 20% down payment, you won’t be building much equity in the first decade or so of your loan.
In addition, if you’re looking to save big on interest, you may be better off opting for a 15-year FRM. The longer your loan term, the higher the interest rate typically is.
The Interest Rate on a 20-Year FRM
The interest rate on a 20-year fixed rate mortgage varies month over month. For example, in June of 2018, the interest rate is 4.375%. If you’re looking for a home loan with a lower interest rate (and don’t mind making higher monthly mortgage payments), consider a 15-year or 10-year FRM instead.
One of the main advantages to a 20-year fixed rate mortgage is right there, in its name: your rate will stay the same for 20 years. If rates are particularly appealing now, it may be worth it to opt for this mortgage and lock your rate in.