When Does a 20-25 Year Fixed Rate Mortgage Makes Sense?

Published on March 18, 2017

– 4 min read

You may be wondering, “what are these products?” Are they vanilla? Or more Rocky Road?

20 & 25 Year Fixed Rate Mortgages In a Nutshell…

A 20- or 25- Year Fixed mortgage works the same way as a 30 Year Fixed mortgage, except the the term is 20 or 25 years instead of 30. But you probably figured that one out for yourself.

The implication is that you still pay the same monthly principal and interest payment throughout the entire term of the loan, but it will be higher than a 30-year loan (since you’re paying it off faster) and you’ll end up paying less in interest (again, since you’re paying it off faster).

 
 

Who should consider the 20- and 25-Year Fixed loan?

The typical homeowner that chooses this loan type have been enjoying the benefits of the 30-Year Fixed loan for 5 to 10 years already and want to refinance because mortgage rates are lower. This keeps them roughly at the same payment level, and the slightly reduced loan term keeps them on schedule for when they will finish paying off the mortgage.

For example, if you bought your home in 2010 with a 30-Year Fixed mortgage, you would be on schedule to pay it off by 2040. In 2015, you notice that interest rates are awesome, but you don’t want to push out your payment schedule to 2045, so you get a 25-Year Fixed loan and still end up owning your home by 2040.

 

If you have any questions, chat with one of licensed Loan Specialists or see what 20 and 25-Year Fixed rates are available now.

Steven Fung
Steven Fung is a licensed Loan Specialist at Clara with over 17 years of experience. When he doesn’t have his mortgage hat on, he enjoys repairing old cars and working on home improvement projects.
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