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Although 30-year fixed mortgages tend to be the most popular option, 20-year mortgages offer many advantages. You’ll save money in interest over the life of your loan, and you can pay off your loan 10 years earlier.
In the second quarter of 2021, 30% of owners refinanced on a shorter term, according to a study by Freddie Mac. Find out about 20-year refinance rates and whether shorter-term refinancing is right for you.
Credible lets you compare mortgage refinance rates from different lenders, all in one place.
Current Trends in 20-Year Mortgage Refinance Rates
Here’s how mortgage refinance rates have changed over the past 12 months.
Historical mortgage rates
Here’s what the average annual mortgage interest rate has looked like over the past 39 years.
How Credible Mortgage Refinance Rates Are Calculated
Changing economic conditions, central bank policy decisions, investor sentiment and other factors influence the movement of mortgage rates. Credible’s average mortgage rates and mortgage refinance rates are calculated based on information provided by partner lenders who pay compensation to Credible.
The rates assume a borrower has a credit score of 740 and is borrowing a conventional loan for a single-family home that will be their primary residence. Rates also assume no (or very low) discount points and a 20% deposit.
Credible mortgage rates will only give you an idea of current average rates. The rate you receive may vary depending on a number of factors.
Benefits of a 20-year mortgage refinance
Refinancing into a 20-year mortgage offers significant advantages:
- You will pay less interest over time. You can save money by refinancing an existing 30-year mortgage into a 20-year refinance. Because you are reducing 10 years of payments, you can save thousands of dollars in interest over the life of the loan. Plus, if you’re able to get a lower interest rate, you could save even more.
- You will pay off your house faster. If you refinance a 30-year mortgage to a 20-year mortgage, you’ll pay off your mortgage faster while gaining equity in your home faster. The equity in your home is the difference between what you owe on your home and its current value.
- You will have predictable monthly mortgage payments. When you refinance from a variable rate mortgage to a 20-year fixed rate mortgage, your rate won’t change and your payments will be much more predictable. This is why fixed rate loans are the most popular option.
Disadvantages of a 20-year mortgage refinance
A 20-year refinance also has some disadvantages:
- You will pay an initial fee. When you refinance your mortgage, you have to pay closing costs — up to 2% to 5% of your loan amount. These costs vary depending on your lender, type and amount of loan, your credit score, etc.
- You may have a higher monthly payment. If you refinance a 30-year mortgage to a 20-year mortgage, the repayment period shortens but your monthly payment increases. If you can afford a higher monthly payment, you can save a lot of money in interest and get rid of your mortgage payments sooner.
- Your mortgage can be reset. If you already have 20 years in your 30-year mortgage, refinancing a 20-year mortgage will add 10 more years to your loan. You may get a lower APR, but you end up paying a lot more than you save.
When is a good time to refinance to a 20-year fixed mortgage?
If you’re paying a higher rate than current 20-year refinance rates, it may be time to refinance.
The Federal Reserve is expected to periodically raise interest rates for the rest of 2022 to deal with rising inflation, according to Bank of America economists. But by refinancing a 20-year mortgage now, you still have the opportunity to save on your monthly payment, shorten the term of your home loan, and benefit from a lower interest rate.
With Credible, you can compare mortgage refinance rates from multiple lenders without affecting your credit.
How to get your lowest mortgage refinance rate
Some factors that affect the refinance rate you will get are beyond your control. But there are several steps you can take to ensure you get the best refinance rate available to you. Here are a few :
Save for closing costs
In addition to saving for a down payment, it’s also a good idea to save for closing costs, which can reach an average of $5,000, according to Freddie Mac.
Refine your credit
Just like when you bought your home, your credit score and history affect your refinance rate, so it’s a good idea to make sure your credit is in the best shape possible.
Check your credit report for errors, such as incorrect information or duplicate accounts. Pay off as many other debts as possible to improve your debt-to-income ratio and pay off credit card balances to reduce your credit usage.
Just as you would compare quotes from multiple vendors for an expensive repair to your home, you should review loans and mortgage interest rates from multiple lenders. In fact, getting five rate quotes could save you $3,000 over the life of your mortgage, according to a Freddie Mac survey.
What is the average cost of refinancing?
Your exact refinance costs will depend on several factors, including your loan amount and where you live. Typical refinance costs include:
- The cost of registering your new mortgage
- Expert fees
- Lawyer’s fees
- Lender fees, such as origination or underwriting
- Title Service Fee
- Credit application fees
- Mortgage points
- Prepaid interest charges
Keep in mind that there is no such thing as a truly no-cost refinance. Lenders who market “no-fee loans” usually charge a higher interest rate and build the cost into the loan, which means you’ll pay more interest over the life of the loan.
What credit rating do you need to get a good 20-year refinance rate?
Before approving you for the best 20-year refinance rates, lenders look at several factors, including your debt-to-equity ratio — the percentage of your gross monthly income that’s spent on your debt. Lenders also consider the loan-to-value ratio, or the percentage of your home’s value that you plan to finance, the type of mortgage, and your credit score.
FICO rates credit scores over a range:
- Exceptional — 800 or more
- Very well – 740 to 799
- Good – 670 to 739
- Fair – 580 to 669
- Poor – 579 or less
To qualify for the lowest interest rates when refinancing a 20-year loan, lenders typically look for a credit score of at least 620 for conventional mortgages. The minimum credit score varies by lender.
It is possible to qualify for FHA loans, such as rate and term or cash refinance, with a credit score of 500. You must make a down payment of at least 10% if your credit score is between 500 and 579. If your credit score is above 580, you may qualify with a down payment of just 3.5%.
You can qualify for a VA loan with a credit score as low as 620, while most USDA loans require a minimum score of 640.
You can compare mortgage refinance rates from various lenders in minutes with Credible.