30 Year Fixed Mortgage Rates vs 20 Year Fixed Mortgage Rates

Should I Refinance Into 20 or 25 Year Fixed Rate or 30 Year Mortgage Rate?

Do you ever feel that every time you refinance your mortgage that you are starting your 30 years all over again? If so, get off the treadmill and look into a 25 or 20 year fixed rate mortgage when you refinance.

Lowest Fixed Interest Rates for 30 Year Refinance:

current mortgage rates are down for borrowers who are refinancing their existing loans. If you are refinancing and you have had your existing loan for more than two years, you should definitely consider refinancing into a 20 or 25 year fixed rate loan.

20 Year Fixed and 25 Year Mortgage Options:

Mortgage lenders traditionally advertise just their 30 fixed rate mortgage and 15 year fixed rate loans. As a result, many home owners are not even aware that they can refinance into a 25 year fixed rate mortgage or a 20 year fixed rate mortgage. Even with rates lower than a 30 year mortgage, the payments on a 15 year fixed rate mortgage are usually a little higher than their monthly budget can handle, so most people choose the 30 year fixed rate option.

20 Year Fixed & 25 Year Fixed Rate Mortgage Savings Example:

A simple example will show how much you can save by choosing a 25 or 20 year fixed rate mortgage. Consider the following scenario where a borrower who has had an existing loan for two years decides to refinance:

Comparing Refinancing with 30 year fixed with 25 Year and 20 Year Fixed Rates:

Most home owners would opt to reduce their payments from $1,789.65 down to the new 30 year fixed rate at 4.875% with a payment of $1,608.79, saving $180.86 per month. At first glance, the chance to save $180.86 per month looks like the better option. But if you look at the total monthly payments over 30, 25 or 20 years, the picture changes considerably. While the 20 year fixed rate option does have a monthly payment that is $195.68 higher than the existing loan in this example, the 25 year fixed rate actually has a monthly payment that is $34.57 lower than the existing loan. So in this case the smart move would probably be to refinance into a 25 year fixed rate mortgage, cut your payments by $34.57 per month, pay off your loan 5 years earlier and save $52,640 in total interest.

Factors To consider before refinancing with 30 year fixed mortgage rates:

Of course, there are external factors to consider when refinancing as well. A more complex analysis takes into account what you would do with the monthly savings from refinancing. For example, if you were to take the monthly $180.86 savings from going from one 30 year fixed to another and then invest that savings into a stock or bond that would yield much higher returns over 30 years, then it might actually make sense to stick with the 30 year fixed. The only problem with that analysis (as we have seen in the past couple of years) is that investment returns are never guaranteed. On the other hand, locking in savings with a fixed rate mortgage does insure that you will get those savings over the long term.

To learn whether a 20, 25 or 30 year fixed rate mortgage is best for your specific financial situation, complete a free rate quote request.

To see the current mortgage rates, visit our Current Mortgage Rates page.

If you have any questions that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.

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