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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 — if you can find a bank that offers that term.
A 25-year mortgage saves you interest
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 and save more in the long run.
For a $200,000 mortgage at 4.50% interest…
| Mortgage term | Monthly Payment | Total Interest Paid | Savings |
|---|---|---|---|
| 15 years | $1,530 | $75,398 | $89,415 |
| 25 years | $1,112 | $133,499 | $31,313 |
| 30 years | $1,013.37 | $164,813.42 | – |
In this example, with monthly payments of $1,112 on a 25-year mortgage of $200,000 at 4.5% APR, your total interest paid by the end of the loan amounts to $133,499. 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.
What are the benefits of a 25-year mortgage?
A 25-year mortgage offers a few useful benefits for homeowners, including: Taking out a 25-year mortgage does have potential pitfalls to be aware of: 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. Adjustable-rate mortgages (ARMs) are loans with rates that are not fixed for the life of the loan. After a set 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. Most ARMs are 30-year terms, but your 25-year ARM may still have the more typical 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 20 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. 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 Quicken Loans offering a 25-year option. But refinancing can sometimes have more flexible mortgage terms. So, if you’re worried about prepayment penalties or being limited to a few lenders, you could wait until your house has the equity you need to refinance to a lower term. For example, you could pay extra on your payment for five years on a 30-year term, then refinance to a 20-year mortgage to get the benefits of a 25-year mortgage without having to worry about a penalty. If you 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 if your preferred lender doesn’t offer this term, watch out for any prepayment penalties that might eat into that savings if you try to DIY your mortgage term by paying extra each month. Comparing investment returns vs. mortgage savings. Cornerstone Home Lending offers a standard list of mortgage loans with some portfolio options, but you have to contact a loan officer for rates and fees. Learn what to look for in a mortgage, what to avoid and what to research if you’re thinking about moving into a retirement community. How to successfully transfer your property to someone else. It’s not just a fairy tale — you can really buy your own castle. Working out how interest is calculated on a home loan can help you figure out how much you can borrow and how to pay it off sooner. A change in personal circumstances may make it necessary to remove a name from a property deed. Here’s how to go about it.
What should I watch out for?
Is a 25-year mortgage loan right for me?
ARMs vs Fixed 25-year mortgages
Most US banks don’t offer 25-year mortgages
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