The 20 year refinance is the ultimate “Goldilocks” loan. Coming right between the popular 15 and 30 year mortgages, it gives borrowers like you the best of both worlds. On the one hand, you get a faster payback period, like you would with a 15 year loan. On the other hand, the extra five years of payback time makes the monthly principal and interest payment much easier to handle than that of a 15 year loan.
20 Year Mortgage Rates Today
While every fixed rate mortgage refinancing loan today carries extremely attractive rates, a 20 year mortgage is even better than a regular 30-year loan. Since it has a shorter term, most lenders will give you a lower rate on it. Although the amount of money it can save you will vary from lender to lender and will depend on market conditions, you should be able to find a rate that is between 15 and 25 percent less than a 30 year loan. In other words, if the prevailing rate on a 30 year loan is 4.5 percent, you should be able to lock in an interest rate of between 3.4 and 3.8 percent on a 20 year fixed refinance mortgage.
Preparing to Take Advantage of Low 20 Year Refinance Rates
There are two major steps that you will need to take to take advantage of the opportunity to get a low-rate 20-year fixed rate refinance loan. The first step that you need to take is to prepare yourself to get a new loan. You will need to compile supporting paperwork like pay stubs, bank statements and tax returns so that you can meet the lender’s underwriting requirements. Identify and repair any credit issues before you make an application, as well. Having clean credit not only increases the likelihood that you will be approved but also gives you a good chance of earning a lower interest rate.
Once you have ensured that you will come off as a desirable borrower, you need to actually find a lender. Many lenders only offer 15 or 30 year products, so you will need to shop around to find a 20 year loan. Working with a qualified mortgage broker or mortgage brokering web site is a great way to do this since it is very likely that your local community bank will not offer 20 year loans. When you are shopping around, try to find a few competing banks for your 20-year refinance. Since there is not a great deal of competition in the market, comparing lenders will help you to find the one with the best 20 year refinancing rates.
When to Take out a 20 Year Refinance Mortgage Loan
Many personal finance consultants will tell you that you should always take out a shorter mortgage if you can afford it. After all, the sooner that you can pay off your home, the sooner you will be able to use the money that you spend on your monthly principal and interest payments for something else. At the same time, though, they will also argue that having a high fixed mortgage payment can be a hardship if you lose your job or have some other reduction in income. The payment of a 20-year mortgage is much lower than that of a 15-year loan, giving you the best of both worlds.
If you are looking at refinancing your five-or-so year old 30-year mortgage, a 20 year mortgage is a particularly good idea. Between the benefit you get from lowering your rate and the benefit of having a lower payment because you start with a lower mortgage amount, going to a 20 year mortgage could not only get your house paid off more quickly but also save you money every month. For example, if you took out a $200,000 loan at the prevailing average rate of 6.4 percent five years in the middle of 2007, your payment would have been $1251. Today, if you refinanced your $187,005 balance at 3.5 percent for 20 years, you would have a payment of $1085. In other words, you could pay your house off five years sooner than you originally planned, and reduce your monthly mortgage payment by around 15 percent, putting an extra $166 in your pocket every month.
The 20 year refinance solves a number of problems for homeowners. It helps to conserve cash by offering a low monthly payment. At the same time, its accelerated payment period also lets you get out of debt more quickly than you would otherwise have done by refinancing a 30-year loan with another 30-year loan. While interest rates remain low, it is an excellent time to look into refinancing your mortgage.
Back to Mortgage News & Articles