Lower your payments without sacrificing spending flexibility.
A 25-year mortgage might not sound like a big difference compared to a 30-year term. But those five years can help lower your total paid interest and let you own your home faster.
How does a 25-year mortgage compare to 30-year mortgages?
With both 25- and 30-year mortgages, you can keep your monthly payments down and pay more interest for the life of your loan. Depending on your APR, you can end up paying close to your initial principal in interest alone — though still lower than a 30-year term. However, by shortening your term by only five years, you’ll pay a bit more monthly, but you can save big in the long run.
For a $200,000 mortgage at 4.50% interest…
| Mortgage term | Monthly Payment | Total Interest Paid | Savings |
|---|---|---|---|
| 25 years | $1,111.66 | $133,499.49 | $31,313.93 |
| 30 years | $1,013.37 | $164,813.42 | – |
In comparison, a 30-year mortgage results in lower monthly payments of $1,013 with a higher total interest paid of $164,813. A 15-year mortgage requires an even higher monthly payment of $1,530, but with a smaller amount of interest paid at $75,398.
Note that 25-year mortgages often feature lower interest rates than their 30-year counterparts, resulting in more savings on interest.
Lenders that offer 25-year mortgages
What are the benefits of a 25-year mortgage?
A 25-year mortgage offers a few useful benefits for homeowners, including:
- Spending more on a house. With lower monthly payments, you could qualify for a larger loan.
- More savings. Spending less on monthly mortgage payments could help you save focus on other savings and bills. However, you’ll pay more in interest in the long run.
- Tax deduction. Since a larger portion of your payments go toward interest, you’re able to write that off on your tax return.
- Easier to qualify. The lower payments required of a 25-year mortgage mean more people are eligible for the loan.
What should I watch out for?
Taking out a 25-year mortgage does have potential pitfalls to be aware of:
- High interest rates. While interest rates are typically slightly lower than 30-year terms, you could be stuck with an interest rate nearing 5% as of January 2019.
- Limited availability. It can be difficult to find a bank that offers a 25-year term, depending on where you live.
- Pay more interest. Since you’re paying smaller monthly payments, you’ll pay more interest than with a mortgage with shorter terms.
- Build equity slower. Compared to a shorter-term mortgage, it takes longer to build equity and truly own your home with a 25-year mortgage.
Is a 25-year mortgage loan right for me?
If you can find a bank that offers one, a 25-year mortgage can be a solid option. Like a 30-year term, the lower monthly payments can free up more money to put towards bills or help you save for the future. And, compared to a 30-year term, you could save more on interest in the long run.
But, your total interest paid on a 25-year term ends up nearly double that of a 15-year term. If you can comfortably pay your mortgage and living expenses, and want to own your house as soon as possible, a shorter-term mortgage might be for you.
ARMs vs Fixed 25-year mortgages
Adjustable-rate mortgages are loans with rates that are not fixed for the life of the loan. After a set period of time, the rates can fluctuate, changing your monthly payments. For example a 5/1 ARM has a fixed interest rate for the first five years. After that time, the interest rates can change annually.
Since most ARMs are 30-year terms, a 25-year ARM will typically come as a 5/1 setup: You’ll have a fixed interest rate on the first five years of the loan, followed by a variable rate for the following 25 years. To offset this variability, ARMs often come with lower initial interest rates than fixed-rate mortgages.
Which makes for the better choice depends on how long you plan on living at your home. If you plan on moving before the fix-rate period ends, an ARM can save you money with lower interest rates. However, if you plan to live in your home longer, it can be risky to take on an ARM unless you know you can pay your mortgage no matter how the rates fluctuate.
Which banks offer a 25-year mortgage?
Finding a bank that offers a 25-year, fixed-rate term might be tricky depending on where you live. Most banks stick with 15-, 20-, and 30-year terms, with only a few like Citi offering a 25-year option.
Bottom line
If you can find a lender that offers them, a 25-year mortgage can offer you the financial flexibility and dependability of a 30-year mortgage while helping you save on interest.
But since they can be hard to find, you’ll want to compare similar mortgage terms to find the one that best suits your needs.