20 year or 30 year loan - same rate (3.25%) - which one? (interest rate, refinance)

[Erikaja6]

We received a quote to refinance our loan at 3.25% for either a 20 year or 30 year loan. I expected the rate for the 20 year loan to be slightly lower, but it’s not. We currently have a 30 year loan (2 1/2 years in) at a rate of 4.125%.

Would you do a 20 year loan or the 30 year loan (but voluntarily pay more each month as though we actually had a 20 year loan)?

[simplechamp]

Depends on your own budget. If you can comfortably fit the 20yr payment into your budget, why not? But if 20yr payment will strain your budget probably better to do the 30yr and pay extra when you can. If you go for the 30yr planning to pay off in 20 need to be disciplined. Might be easy to get into habit of "We'll pay the minimum this month because we need the money for xxxxx". You can always pay a 30 like a 20, but not the other way around!

We are in similar situation, and went with a 30. It was same rate for both also. Because we are buying new house before selling old we wanted to keep payment low. Just in case it takes awhile to sell (who knows with current situation). When we're back down to 1 mortgage plan to pay it off in 20yrs or hopefully less.

[adjusterjack]

Originally Posted by Erikaja6

Would you do a 20 year loan or the 30 year loan (but voluntarily pay more each month as though we actually had a 20 year loan)?

Let's look at the difference. I'm assuming 300,000 for this example.


300,000 @ 3.25 = 1305.62 PI for 30 years. Total interest paid in 30 years - 170,022.56


300,000 @ 3.25 = 2108.01 PI for 20 years. Total interest paid in 20 years - 79,441.80


That's about 90,000 that you get to keep.


You can use this amortization calculator and put in your own figures.


Mortgage/Loan Calculator with Amortization Schedule

[RamenAddict]

If there is no prepayment penalty, go ahead and take the 30 and pay is if it is a 20. That way if something happens like you have to take a pay cut or are furloughed/unemployed a while, you still have the security of having a lower payment option.

[LifeIsGood01]

I would get the 30 year loan and pay it as a 20 year loan and if things ever get bad that month or moths you can skip the extra prinicap payments until things get better.

[artillery77]

Had the same thing OP. Originally requested a 15 year and they came back with a 30 year quote. When I saw the interest rate delta, I understood. I won't be working in 30 years, but my math is sharp enough to pay it ahead.

[Erikaja6]

Thanks everyone for the advice. We’re going to go with the 30 year term, but set up our automatic monthly payments as though we have a 20 year term.