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When it comes to getting a mortgage, you have options. You could get a 30-year loan, a 20-year loan, or a 15-year loan. But a 15-year loan will mean taking on higher monthly payments. So if you're on a tighter budget, your choice may be limited to a 20- vs 30-year mortgage, as opposed to a 15- vs 30-year mortgage. Here, we'll help you decide which mortgage term is right for you.
There are plenty of good reasons to take out a 20-year mortgage:
On the other hand, there are drawbacks to getting a 20-year mortgage:
Taking out a 30-year mortgage can work to your benefit:
But there are disadvantages to a 30-year loan:
When it comes to choosing between a 20- and 30-year mortgage, there are no right or wrong answers. To figure out what's the right call for you, ask yourself:
If you like the idea of getting a 20-year mortgage but are worried about committing to the higher monthly payment, there's another solution you might consider. Instead of getting a 20-year fixed mortgage, you could instead take out a 30-year loan but aim to make an extra payment or two into your mortgage every year. In doing so, you'll knock out your loan balance a lot sooner and also save money on interest.
You could also decide to take out a 30-year mortgage but put any extra money into that loan to pay it off faster and spend less on interest. For example, if you pump your tax refund and the cash gifts you generally receive for the holidays into your mortgage, you can pay it off sooner and lower the amount of total interest you pay. But you won't have to deal with the pressure of being locked into a 20-year loan and a higher monthly payment.
Finally, remember that if you get a 20-year mortgage and you find that it's hard to manage, you can always refinance to a 30-year mortgage. And vice versa -- if your income increases a year or so after signing your mortgage, you can refinance to a loan with a shorter term. There are different options to play around with as a mortgage borrower. So rest assured that if you wind up changing your mind after signing a loan, you're not necessarily stuck with it.
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Both a 20- and a 30-year mortgage could end up being a good choice for you. It will largely depend on your financial situation and your different goals. If you have room in your budget for the higher monthly payment that comes with a 20-year mortgage, getting a shorter loan term could save you a lot of money in interest during the course of paying off your home. But if you're worried about taking on a higher payment each month, then a 30-year mortgage could be a safer bet. Though you'll spend more on interest over the life of your loan, your monthly payments will be more manageable.
With a 20-year loan, you'll spend less money on interest because you'll not only pay interest for fewer years, but you'll be rewarded with a lower interest rate on your mortgage to begin with. Also, a 20-year mortgage will allow you to pay off your home sooner, and there's something to be said for becoming debt-free 10 years earlier.
If you're not used to paying for a home, a 30-year mortgage may be a safer bet for you. There are expenses on top of your mortgage payment you'll need to cover, including property taxes, homeowners insurance, and home maintenance and repairs. Until you're used to having those expenses in your budget, you may want to stick with a lower monthly mortgage payment, which you'll get with a 30-year loan. That said, if you have a healthy income and can easily afford a higher monthly payment, a 20-year mortgage could be a smart choice, even if you're new to owning a home.
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