Should You Take a 20-Year Fixed Mortgage or a 30-Year Fixed Mortgage?
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Less Interest Paid
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Taking a 20-year mortgage rather than a 30-year mortgage will save you money because of the smaller amount of interest you will pay. For example, if you have a $200,000 mortgage at 7 percent, over a 20-year term you will pay $172,143.49 in interest. Over a 30-year term, you would pay $279,017.80 interest.
Lower Monthly Payments
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The longer the term of your mortgage, the lower your monthly payments will be, which may allow you to purchase a larger home. For example, the same $200,000 mortgage at 7 percent would have a monthly payment of $1,550.60 with a 20-year term but a 30-year term you would have a monthly payment of $1,330.60. In addition, shorter terms typically have lower interest rates, according to Bankrate.
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Bottom Line
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If you can afford to make the larger monthly payments, you should take a 20-year mortgage so that you can avoid paying extra interest on your mortgage. However, if you need the smaller payments, the longer term can be your only option to finance your home.
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