Available Loan Types

• Lenders offer many different loan programs, which amortize over 30-years. Thirty-year mortgages include fixed-rate mortgages, adjustable rate mortgages (ARMs) and balloon mortgages. Most mortgage lenders only offer fixed-rate 20-year mortgages. Homeowners looking for an adjustable rate or other nonfixed-rate mortgage program may be limited to a 30-year amortization term.
  
  

Interest Rate and Loan Payment Amount

• Twenty-year mortgages sometimes offer lower interest rates than 30-year mortgages. This varies from lender to lender, but a 20-year mortgage rate is often lower than a 30-year but higher than a 15-year mortgage. Homeowners pay higher monthly payments on a 20-year mortgage than they do on a 30-year mortgage. Twenty-year mortgages require 120 less payments than a 30-year mortgage. The $200,000 mortgage finance for 20 years with a 6 percent interest rate requires a monthly payment of $1,432.86. The same loan with the same interest rate financed over 30 years, requires a monthly payment of $1,199.10
  
  

Total Interest Paid

• A $200,000, 30-year fixed rate mortgage with a 6 percent interest rate requires the borrower pay $231,676.38 of interest over the life of the loan. The same loan amortized over 20-years requires a total interest payment of only $143,886.91. While a 20-year loan payment is almost 20 percent higher than a 30-year loan payment, the 20-year loan requires almost $100,000 less in interest charges over the life of a loan. While one loan provides a lower monthly cost, the other provides substantially reduce interest charges over the life of the loan.
  
  

Which to Choose

• Homeowners should forecast their housing needs over the next 5 to 10 years or longer when choosing between a 20-year and a 30-year mortgage. If the homeowner's goal is to pay off the mortgage as quickly as possible, then the 20-year mortgage makes the most sense. If the homeowner knows he may not own the home in 5 years, then the 30-year mortgage may make more sense. Since every homeowner's situation differs, only the homeowner should choose which loan program is best for them.