10-Year Mortgage Guide

A 10-year mortgage often isn’t the first choice for prospective homebuyers. It offers the ability to pay your home loan off much faster than traditional mortgages. But you’ll also pay the price to enjoy this perk in the form of a higher monthly mortgage payment. Still, this mortgage product is worth considering in certain circumstances.

This guide explores how 10-year mortgages work, average rates, the significant pros and cons of these home loans, and how to decide if they’re suitable.

What Is a 10-Year Mortgage?

A 10-year mortgage is a home loan option with a repayment term of 10 years. It’s a popular option for homeowners who want to repay their loan quickly and own their home outright sooner.

There are two types of 10-year mortgages to be aware of.

10-Year Adjustable-Rate Mortgage

Adjustable-rate mortgages (ARM) come with interest rates that fluctuate periodically. This means your monthly payments could go up or down based on the adjustment of rates tied to a specific financial index. An ARM might start with a lower initial interest rate than a fixed-rate mortgage, which can be attractive if you intend to sell or refinance within the loan’s introductory fixed-rate period.

10-Year Fixed-Rate Mortgage

With 10-year Fixed-rate mortgages, your interest rate doesn’t change over the life of the loan. Your monthly mortgage payments are consistent, making it easier to budget housing costs. This type of mortgage generally comes with a higher monthly payment than longer-term loans, but the trade-off is less paid interest and quicker equity build-up.

How to Choose Between a 10-Year Fixed vs Adjustable-Rate Mortgage

When deciding between a 10-year Fixed-Rate mortgage loan and an Adjustable-Rate Mortgage, consider your financial situation and how long you plan to stay in your home.

If you prefer predictable payments and plan to live in your home for the duration of the loan term, a fixed-rate mortgage may be your best option. However, an ARM could offer cost savings during the initial rate period if you anticipate moving or refinancing before the rate adjusts.

Current 10-Year Mortgage Rates

Below is a closer look at the average rate on these home loans:

• Bankrate: 6.36% (10-year fixed)
• Zillow: 7.00% (10-year fixed)

Factors Affecting 10-Year Mortgage Rates

Several factors influence mortgage rates:

• Current economic conditions: When inflation is high, mortgage rates generally follow suit. Lenders assess higher rates in this case to compensate for the decreased purchasing power of the funds the borrower repays over time.
• Federal funds rate: When the Federal Reserve adjusts the federal funds rate, it indirectly impacts mortgage rates.
• Bond market: The yields on U.S. Treasury securities are another vital factor, as mortgage rates often move in the same direction as the yield on 10-year Treasury notes.

Mortgage lenders will also assess your unique financial profile to determine the rate you qualify for. Depending on your credit score, debt-to-income (DTI) ratio, down payment, and loan-to-value (LTV) ratio, it could be higher than the advertised rate.

How to Get the Best 10-Year Mortgage Rates

When looking for the best 10-year mortgage rates, compare different lenders to find the most favorable terms. Each lender has unique lending criteria, so shopping around can lead to significant savings.

Here are a few tips to keep in mind as you explore your options:

• The best rates go to borrowers with solid credit scores, as they pose less of a credit risk to the lender. So it’s worth improving yours before applying for a loan.
• A larger down payment lowers the LTV ratio, which could help you qualify for a better rate.
• Short-term mortgages generally come at more competitive rates than long-term mortgages.
• Don’t forget to ask about fees, as they can increase your borrowing costs.
• Look at both the interest rate and APY – the latter also factors in fees and reflects the true cost of the loan.

Pros and Cons of 10-Year Mortgage

A 10-year mortgage has its share of benefits, but there are also significant drawbacks to ponder when deciding if it’s a good fit.

Pros

• Repay your mortgage faster: A significant advantage is the ability to repay your loan in a decade. This shortened timeline means you’ll be free from mortgage debt much earlier than with traditional 15- or 30-year loans.
• More competitive interest rates: Lenders associate less risk with shorter loan terms. So, 10-year fixed mortgage rates are typically lower than those for longer-term mortgages.
• Less interest and cost overall: A 10-year mortgage has lower total borrowing costs since you pay interest for a shorter period. Consequently, you can save a mini fortune over the life of the loan.
• Build home equity quickly: Equity builds at a faster rate with a 10-year mortgage. You can own a greater portion of your home outright in a shorter amount of time.

Cons

• More difficult to qualify for: Due to higher monthly payments, lenders may require you to have a better credit score and a lower debt-to-income (DTI) ratio to qualify for a 10-year mortgage.
• Higher monthly payments: Expect your monthly payments to be significantly higher than those of longer-term loans, which can stretch your budget thin.
• Contributes to a higher DTI: Opting for a 10-year mortgage increases your DTI because of higher monthly payments. Your eligibility for other loans or credit lines could be negatively affected.
• You might miss out on other opportunities: A higher mortgage payment ties up more money in your monthly budget. This cost could limit your ability to invest elsewhere or take advantage of other financial opportunities.

How to Refinance a 10-Year Mortgage

Refinancing your 10-year mortgage could secure you a more favorable interest rate or lower monthly payments. Here’s how to move forward:

• Step 1 – Check current rates: Compare the current 10-year mortgage rates with your existing rate. If the rates have dropped significantly, you could benefit from refinancing.
• Step 2 – Assess your financial health: Evaluate your credit score and DTI ratio. A good to excellent credit score and low DTI may qualify you for better terms with lenders.
• Step 3 – Gather the necessary documents: Prepare your financial documents, including tax returns, pay stubs, bank statements and other documents the lender will need to make a decision on your loan application.
• Step 4 – Shop for lenders: Contact at least three lenders to find the best refinance offer. Look beyond the rate – consider the average closing costs and the lender’s reputation.
• Step 5 – Apply for a mortgage: Once you’ve chosen a lender, apply online or at a physical branch (if applicable). Be sure to submit the requested documentation promptly to avoid delays with the processing of your application.
• Step 6 – Lock-in rate: If you’re satisfied with the rate offered and believe it makes sense for your financial situation, lock it in.
• Step 7 – Close the deal: Review the loan documents carefully and ask any questions you may have. Ensure that the interest rates and conditions match your expectations before signing on the loan documents at the closing table.

Comparing Lenders of 10-Year Mortgages

Several lenders offer 10-year mortgages to meet the needs of borrowers, including:

• CrossCountry Mortgage
• Mutual of Omaha
• Top Flite Financial
• New American Funding
• Rocket Mortgage
• Newrez (formerly Caliber Home Loans)
• AmeriSave Mortgage
• loanDepot

When Is a 10-Year Mortgage Worth It?

Opting for a 10-year mortgage can be a strategic move under these circumstances:

• You have a sizable income and adequate savings and would like to build equity rapidly.
• You’re also looking to save a bundle in interest by paying off the loan faster.
• You qualify for a competitive rate on a loan.
• You’re nearing retirement and prefer to repay your mortgage sooner than later.

Ultimately, it’s worth conducting a cost-benefit analysis to gauge if a 10-year mortgage is a smart financial move for you.

How to Apply for a 10-Year Mortgage

If you’re ready to apply for a 10-year mortgage, create a shortlist of lenders based on your research and get pre-approved. Based on the loan offers, decide which is best and formally apply with the chosen lender. Once you’ve submitted an application, a loan officer will reach out to provide further information and advise you on the next steps.

More Alternatives to a 10-Year Mortgage

Maybe you’re not quite sold on the idea of a 10-year mortgage despite the significant savings it can yield. In this case, there are viable alternatives that could work for you.

Make Extra Payments

Shortening the length of your mortgage does not necessarily require refinancing. Instead, you can make extra payments toward the principal to shorten the term and minimize interest costs. However, before adopting this strategy, be sure the lender does not assess early repayment penalties.

Consider Refinancing

Refinancing to a different term can get you a better interest rate. It can also help you switch from an adjustable-rate mortgage to a fixed-rate mortgage, which gives you predictable monthly mortgage payments.

Conventional 20- or 30-Year Mortgages

A conventional 30-year mortgage with a fixed rate is a popular choice, providing a set interest rate and affordable monthly payment. If you go with a 20-year mortgage, you get a lower rate and monthly payment that’s lower than with a 10-year mortgage.

Government-Backed Mortgages

Government-backed loans like FHA (Federal Housing Administration), VA (U.S. Department of Veteran Affairs) and USDA mortgages (U.S. Department of Agriculture)offer attractive features that make them appealing. Their interest rates can be competitive with conventional loans, and the credit guidelines are often more lenient.

FAQs About 10-Year Mortgages