Profile picture for vinsbhat

Is 20 Year Fixed Mortgage loan better than a 30 year old loan in terms of the interest costs

I wanted to compare the difference between the total interest costs if I decide to re-finance my 30 year fixed rate mortgage with a 20 year fixed rate especially since the rates are falling. With a lower rate, I might probably pay the same monthly payment amount as before (30 year loan) but it would have reduced the number of years.

Let me know your thoughts

  • December 17 2008 - Collegeville
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Answers (7)

Best Answer

30 year rates are not necessarily lower than 20 year rates, it depends on the lender. If you can pay the mortgage in 20 years you will save a significant amount of money. Ask your broker/banker what the difference in rate between the 20 and the 30 year terms are. If they are the same or very close, ask him/her to calculate the payment for a 20 year amortization of the 30 year note. This will give you the flexibility of having the lower 30 year term payment in case you are financially strapped, but give you the benefit of knowing what you need to pay each month to pay that note off in 20 years. Good luck!
  • December 17 2008
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Profile picture for just lou
You won't pay less less interest if the 30 year is a lower rate, and make the same payments you would have on a 20 year mortgage. You'll pay less interest, and pay the mortgage off in less than 20 years. 
  • December 17 2008
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You will pay less interest on the 20 year mortgage in the long run. If you can swing the payment, this is the way to go.
  • December 17 2008
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Profile picture for just lou
That's interesting than the 30 is cheaper than the 20 now.
  • December 17 2008
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Just Lou, rates went up again today.  So, if they are under 5%, it won't be much.
  • December 17 2008
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Profile picture for just lou
When I recently refinanced, the interest rate on the 20 year was only 1/8th less than the 30 year.  I chose the 20 since the payment was the same as what I was making on my original 30, including the extra principle I was paying. The only difference is my loan will be paid off 4 years sooner. FWIW, I locked a couple of weeks ago at 5.125%. My broker managed to get it down to 5.00% this week without any points or extra charges.  You might be able to get <5% now.
  • December 17 2008
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Profile picture for Rob Cochems
Honestly look into refinancing with a 30 year fixed.  Rates are lower on a 30 year fixed right now, then they are with a 20 year.  Then calculate what your 20 year payment would be, and just pay that every month.
  • December 17 2008
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