If you’re on a mission to pay off your mortgage as quickly as possible, a 20-year refinance could be a perfect fit.
Buyers will need to consider whether the moderately lower interest rate with the 20-year is worth committing to the larger monthly payment that comes with it.
Here’s what you need to know about 20-year mortgages.
What Is a 20-Year Refinance?
A 20-year mortgage refinance is a home loan you repay in 20 years at a fixed interest rate. This refinance loan replaces your existing mortgage’s terms. Repayment terms of 30 years tend to be more common, so a 20-year refinance loan is beneficial for people looking to pay off their mortgages faster.
Alternatives to a 20-Year Refinance
A 20-year refinance is just one financial tool that can help you achieve your goals, but it may not be the only answer for what you’re trying to do.
This type of refinancing can lock you into a hefty monthly payment. If you’re not sure if you’ll be able to afford a 20-year loan’s payment for the long haul, you could simply pay on a 30-year loan as if it was a 20-year loan. Just make sure that your lender knows you’re making extra payments.
In this scenario, you won’t be able to secure the lower interest rate 20-year loans often have, but you will save on interest by paying off your loan earlier. This is less risky because if you experience a loss or reduction in your income, you have the flexibility to make smaller payments without going into default.
You could also look at a loan between 15 and 30 years. Here is how a $250,000 loan’s monthly payment and overall cost could change with the different loan terms and rates.
|LOAN TERM||INTEREST RATE||MONTHLY PAYMENT||TOTAL INTEREST|
Once you run the numbers for all of your options, you’ll have a better idea of what loan term best fits your goals. There is no one loan option that is the best deal, but there is one that can help you reach your financial goals.
The Latest Refinance News
What’s Causing Refinance Rates to Go Up?
The surge in mortgage rates so far this year is due to a variety of economic factors. Persistently high inflation is a big one, Jacob Channel, senior economic analyst at LendingTree told us. The latest report from the Bureau of Labor Statistics, has inflation at 8.3% in April — the highest it’s been in 40 years. Interest rates tend to rise when inflation is high, says Channel. In May, mortgage rates rose again after the Federal Reserve’s recent announcement that it will raise its benchmark short-term interest rate by a half of a percentage point (0.50%) with the intention to help combat inflation.
Financial markets are still responding to other global factors that can affect the economy, namely China’s COVID lockdown and Russia’s invasion of Ukraine. “We have a lot of factors like that that are putting upward pressure on mortgage rates,” Channel says. “The volatility has been through the roof,” Shashank Shekhar, founder and CEO of InstaMortgage, told us. “The market has been adjusting to a new news cycle practically every single day.”
Is Refinancing Still a Good Option Right Now?
If you’re looking to refinance to save money by getting a lower interest rate, you can still do so if your current rate is higher than what you’d be able to get on the market today. “If you can lower your rate, regardless of what’s going on in the market, and it’s going to save you money, cool,” Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate, told us.
In fact, 4 million homeowners could get a rate at least 0.75% lower by refinancing, with 2 million of those being “high-quality refinance candidates” who meet certain eligibility criteria, according to Black Knight, a mortgage technology and data provider.
While the demand for refinances has cooled off significantly, there could still be other reasons to do it, Channel says. One is for a cash-out refinance, in which you tap into the equity of your home to get cash for something like a home improvement project or debt consolidation. You might also want to convert a 30-year fixed-rate loan to a 15-year loan or vice versa. “If you are in a position where you think you would benefit from modifying your loan in some way, it doesn’t hurt to ask a lender what they can offer you,” Jacob Channel, senior economic analyst at LendingTree, told us.
As rates continue to rise, refinancing might still be a good option to meet your financial needs, experts say. You can shop around and consider different changes to see if they’re still right. “If you are in a position where you think you would benefit from modifying your loan in some way, it doesn’t hurt to ask a lender what they can offer you,” said Channel.
What Are Today’s 20-Year Refinance Rates?
On Saturday, May 28, 2022 according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the average 20-year refinance rate is 5.240% with an APR of 5.250%.
Current 20-Year Refinance Rates
|30-Year Fixed Rate||5.220%||5.230%|
|30-Year FHA Rate||4.390%||5.220%|
|30-Year VA Rate||4.440%||4.620%|
|30-Year Fixed Jumbo Rate||5.190%||5.200%|
|20-Year Fixed Rate||5.240%||5.250%|
|15-Year Fixed Rate||4.520%||4.540%|
|15-Year Fixed Jumbo Rate||4.510%||4.520%|
|10-Year Fixed Rate||4.450%||4.470%|
|5/1 ARM Rate||3.790%||4.720%|
|5/1 ARM Jumbo Rate||3.720%||4.530%|
|7/1 ARM Rate||4.720%||4.340%|
|7/1 ARM Jumbo Rate||4.760%||4.300%|
|10/1 ARM Rate||4.780%||4.480%|
|30-Year Fixed Rate||5.240%||5.250%|
|30-Year FHA Rate||4.410%||5.210%|
|30-Year VA Rate||4.430%||4.530%|
|30-Year Fixed Jumbo Rate||5.200%||5.210%|
|20-Year Fixed Rate||5.280%||5.300%|
|15-Year Fixed Rate||4.550%||4.580%|
|15-Year Fixed Jumbo Rate||4.560%||4.580%|
|10-Year Fixed Rate||4.450%||4.470%|
|5/1 ARM Rate||3.900%||4.830%|
|5/1 ARM Jumbo Rate||3.820%||4.830%|
|7/1 ARM Rate||4.630%||4.350%|
|7/1 ARM Jumbo Rate||4.680%||4.270%|
|10/1 ARM Rate||4.700%||4.460%|
Rates as of Saturday, May 28, 2022
ABOUT THESE RATES
These rate averages are based on weekday mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures. These averages provide borrowers a broad view of average rates that can inform borrowers when comparing lender offers. We feature both the interest rate and the annual percentage rate (APR), which includes additional lender fees, so you can get a better idea of the overall cost of the loan. The actual interest rate you can qualify for may be different from the average rates quoted in our rate table. But these rates are useful for giving you a benchmark to use when comparing loan offers by giving you a sense of how the type of mortgage and the length of the repayment term impacts your interest rate and APR.
Pros and Cons of a 20-Year Refinance Loan
Lower interest rates
Shorter repayment term
Build equity more quickly
Pay much less interest in the long term
Higher monthly payments
Less money to invest each month
Less money available to save each month
20-Year Refinance Loan: Frequently Asked Questions (FAQ)
When is the right time to refinance?
The right time to refinance is when you’re able to get a refinance loan with better terms than your existing mortgage. This can come in the form of a lower interest rate, lower monthly payments, or a faster repayment period. Homeowners with adjustable-rate mortgages (ARM) will also benefit from a fixed-rate refinance loan because they offer more stability. Any refinance offer you receive will be dependent on your credit profile, your mortgage payment history, and the interest rates currently available in the market.
When does a 20-year refinance loan make sense?
20-year refinance loans make sense when you want to finish paying off your mortgage more quickly than you would with the typical 30-year mortgage. After that repayment period, you would own your home outright. These types of loans also make sense if refinance rates are low (or lower than the interest rate on your existing mortgage). But you’ll have to make sure you can afford the higher monthly payments that come with a shorter repayment period.
How do I find the best fixed 20-year refinance rate?
To get the best fixed 20-year refinance rate, shop around between multiple lenders. Do your research on which lenders are offering these types of loans, and aim for at least three different Loan Estimates to get an understanding of what the market will offer for someone with your credit profile.
Underwriting criteria differs between each lender, so make sure that your credit and finances are in a good place before trying to refinance to give yourself your best chance at securing a good refinance rate. Make sure to view your credit reports from the three major credit bureaus (Equifax, Experian, and TransUnion) and dispute any inaccuracies you notice. Once you receive Loan Estimates, look at APR, repayment period, fees, closing costs, and other criteria before signing on the dotted line.