Can I Get a 20 Year Mortgage?
According to its mortgage interest rate report dated November 2010, Freddie Mack reported that "long-term mortgage interest rates hit two new record lows in October, although rates were moving back up by the end of the month." With terms ranging from 10 to 30 years along with fixed rate, adjustable rate and interest only options, it can be difficult to choose the right loan for your situation. A 20 year fixed rate mortgage provides a middle ground for borrowers who want a lower monthly payment than a 10 or 15 year note provides but want to pay off their home in less time than the more conventional 30 year plan. The fixed rate will also take out the risk of a rise in interest that can happen with an adjustable instrument.
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How it Works
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The interest rate and monthly payment on a 20 year fixed mortgage remains constant throughout the term of the loan. Similar to the 30 year fixed, the initial payments are directed predominantly towards the interest with more going to principle in the later stages of the term. However, making additional payments towards the principle prior to the end of the term is typically allowed with no early payoff penalty.
Considerations and Timing
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Though mortgage rates continually fluctuate, a shorter term loan typically has a lower interest rate than a longer term loan. For instance, a 15 year fixed loan might be obtainable at 3.75 percent, a 20 year at 4.00 percent and a 30 year at 4.25 percent. Whether you are refinancing or purchasing a new home, the ideal time to lock in a fixed mortgage is when the interest rates are low. In order to determine the best time to secure your loan, review published rates on a weekly basis.
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Benefits
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A 20 year fixed rate mortgage has multiple advantages. For example, payments to the principle increase more rapidly than a 30 year loan, so equity increases faster and less interest is paid over the life of the loan. If you choose an adjustable mortgage, realize that interest rates can go up. Given the fact that interest rates are at all-time lows as of November 2010, it makes sense that adjustable instruments will likely see increases in their rates.
Cost
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Regardless of whether you are purchasing a new home or refinancing, the cost to obtain a 20 year mortgage is contingent upon the financial institution's closing costs, the amount of the loan, the state and a few other variables. Loan origination fees are assessed, which include administrative expenses and loan processing fees. Other costs considered include credit rating report costs, title searches for most states and prepaid interest. Each of these fees vary based on the financial institution and the state.
Tips
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Make sure that your research covers multiple mortgage lenders, but do not over analyze and wait too long to secure your loan because rates can increase at any time.
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