The 20 year loan is very similar in benefits and disadvantages to the 15 year loan. Obviously its going to cost more per month, but you gain equity faster. So instead of writing everything out again, I will post reasons why people would consider the 20 year loan, good and bad.
1. It might be a good idea for a refinance. If you are looking to refinance your 30 year mortgage, but don’t want to lose the time you have spent paying toward your home this might be a great choice. It offers slightly lower interest rates, while not increasing your monthly payment as significantly as a 15 year mortgage would.
2. It can help you stay on budget. For some people its easier for them to stay on budget if they have that extra $200 a month spoken for. Paying an extra $200 per month with a 30 year mortgage can be hard to do if you want to spend that money on other things.
3. Less banks offer 20 year mortgages. This might be a bad thing if you don’t want to go through the time to find a bank that does offer this loan. An easy way to see who offers them is to look in the newspaper. My local paper lists the current interest rates of all the major and local lenders in town once a week. Just because they don’t list the 20 year mortgage doesnt’ mean they don’t offer it, you just might need to make some phone calls.
4. Sometimes you can get an even lower interest rate with these if you ask. Most mortgage lenders will post thier current rates on their websites, but they won’t lists every option they have available. If you are looking to refinance, but you know its not worth it unless you decrease your intrest rate to 4.5% see if the bank can offer you a loan with this interest rate. You may have to pay more points, but points are tax deductible and you might be able to keep your payment closer to what you are currently paying on a 30 year mortgage.
This can be a great idea for people that find it easier mentally to have a 20 year loan verses a 30 year loan. Of course you can easily turn a 30 year loan into a 20 year loan by paying a little extra each month. This loan would be best for people that sort of have a hard time budgeting ‘extra’ income. I know my brother would do great on this loan, but he would probably have problems paying extra toward the 30 year mortgage when he could be buying a new video game or some other luxary. If you have a similar outlook on life then this might be a great option for you.