The disadvantage to the borrower, however, is that the monthly payments are higher and qualifying may be more difficult. If inflation picks up and broader financial market rates rise, the lender is stuck with the same rate they got when the loan was originated.Ī borrower may save thousands of dollars in the long run by choosing a shorter term loan. If interest rates fall the homeowner can refinance into a lower cost loan. The reason for this is that with a longer term loan the lender has the ability to collect more revenue over time, but in guaranteeing the loan for a longer period of time the lender is taking a greater interest rate shift risk.
These rates continually fluctuate but they often follow this pattern. For example, a 30 year fixed loan may be available at 4%, a 20 year at 3.75%, a 15 year at 3.50% and a 10 year at 3.25%. The normal rule when comparing mortgage plans is that a longer term loan will typically have a higher interest rate than a shorter term. In many cases, additional payments early in the loan period may be applied to the principle or the entire loan may be prepaid before the end of the loan period. Very little of the principle is actually paid until later in the term.
On longer term loans such as a 20 year and 30 year fixed, payments during the first few years go primarily toward paying the interest. Once a payment amount is established and the loan granted, the borrower is assured that each monthly payment is identical for 20 years. Loan CharacteristicsĪs with other fixed term loans, the interest rates on this plan will remain constant for the life of the loan. The 20-year loan option provides distinct advantages over other products. The 20 year fixed mortgage is available from a wide variety of financial institutions, though it is not marketed anywhere near as aggressively as 30-year fixed-rate mortgages. By acquiring a general understanding of the types of mortgage products available and the advantages found in each, the consumer gains the ability to choose the best option.
The continually changing mortgage market often creates a confusing spectrum of choices for borrowers. Today's Twenty Year Mortgage Rates Securing a 20 Year Fixed Mortgage
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