Compare 25-year mortgages

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…

What are the benefits of a 25-year mortgage?

A 25-year mortgage offers a few useful benefits for homeowners, including:

• Save on interest. By paying just a little more per month, you can save tens of thousands of dollars in interest over the life of the loan.
• Lower interest rates. A 25-year mortgage often features lower interest rates than its 30-year counterpart.
• Easier to qualify. With a lower payment than the 15-year term option, choosing a 25-year mortgage may increase your eligibility.

What should I watch out for?

Taking out a 25-year mortgage does have potential pitfalls to be aware of:

• Limited availability. It can be difficult to find a bank that offers a 25-year term in the US, as these terms are most commonly found in Canada, the UK and Australia.
• Prepayment penalties. If you can’t find this term offered by a lender in the US and you want to do it yourself by paying more than your minimum monthly payment, make sure your lender doesn’t charge a penalty for paying off your loan early.
• Higher monthly payment. While payments for a 25-year mortgage are only slightly higher than a 30-year term, you need to make sure it works within your budget to pay more each month.

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.

Most US banks don’t offer 25-year mortgages

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.

Bottom line

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.