If you’re looking to refinance—or in some cases buy a new home—a 10-year mortgage might be a good option for you. Here are the current 10-year mortgage rates and how you can find the right lender.
Taking out a mortgage is a big financial decision that requires careful consideration While 30-year mortgages are the most common, some homebuyers opt for a shorter 10-year mortgage term instead But is getting a mortgage that you’ll pay off in a decade really the best move?
There are pros and cons to weigh when deciding between a 10-year mortgage versus a longer term. In this comprehensive guide we’ll explore how 10-year mortgages work, reasons to choose one and if it ultimately makes sense for your situation.
How Does a 10-Year Mortgage Work?
With any mortgage, you’ll make equal monthly payments over an agreed-upon length of time until the loan is paid off. This timeframe is known as the mortgage term.
A 10-year mortgage has a set interest rate and monthly principal and interest payment for 10 years. Through a process called amortization, each payment applies more money toward the loan principal over time and less toward interest.
10-year mortgages can be either fixed-rate or adjustable-rate. A fixed-rate keeps the same interest rate for the life of the loan. Meanwhile, an adjustable-rate mortgage (ARM) offers a fixed rate for 10 years before it starts fluctuating annually based on market conditions.
Shorter mortgage terms like 10-year generally come with lower interest rates. However, you’ll have higher monthly payments because you’re squeezing all the payments into a shorter timeframe.
Reasons to Choose a 10-Year Mortgage
There are some situations where a 10-year mortgage could be advantageous:
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You want to pay off your home faster. With a 30-year mortgage, it takes 30 years until you fully own your home. A 10-year term gets you there in a decade.
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You want to save on interest. Less time paying interest means shelling out less money overall. 10-year mortgages have lower lifetime interest costs.
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You plan to stay in your home long-term. If you don’t foresee moving soon, a shorter term allows you to build equity faster while rates are low.
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You can afford the higher monthly payment. Since you pay off the balance quicker, monthly payments are about double that of a 30-year mortgage.
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You’re close to retirement. Paying off your mortgage right before retirement gives you more flexibility with expenses.
Pros of a 10-Year Mortgage
- Get out of debt and own your home faster
- Pay less interest over the life of the loan
- Build home equity more quickly
- Take advantage of low interest rates if you plan to stay put
- Don’t have to worry about mortgage in retirement
Cons of a 10-Year Mortgage
- Significantly higher monthly payments
- Risk being “house poor” if you overextend your budget
- Have a mortgage for less time to get tax deductions
- May only qualify for a smaller loan amount
How 10-Year Mortgages Compare to 30-Year Mortgages
To decide if a 10-year term makes sense, it helps to understand how it stacks up against a traditional 30-year mortgage:
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Interest rates – 10-year loans often have lower interest rates than 30-year mortgages. Lenders see shorter terms as less risky.
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Monthly payments – A 10-year mortgage payment is around double that of a 30-year mortgage for the same loan amount. You pay more each month since you’re paying it off faster.
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Getting qualified – The larger monthly payment increases your debt-to-income ratio. This could limit loan qualification or amount you can borrow.
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Tax benefits – You can only deduct mortgage interest on taxes for 10 years rather than 30 years.
Should You Choose a 10-Year or 30-Year Mortgage?
The right mortgage term comes down to your budget, goals, and plans. Here are some factors to think over:
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How much are you comfortable paying per month? Make sure you can afford the monthly payments.
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How long do you plan to stay in the home? A shorter term builds equity faster but only pays off if you stay put.
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How close are you to retirement? Being mortgage-free in retirement can provide peace of mind.
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What other goals do you have? Make sure you still have money to save for other things.
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Could you make extra payments? Many 30-year mortgages allow you to pay more each month to pay down the principal faster.
Tips for Getting a 10-Year Mortgage
If you’ve weighed the pros and cons and decided a 10-year mortgage fits your needs, here are some tips for getting one:
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Shop lenders – Compare interest rates and fees to find the best 10-year mortgage lender for your situation.
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Check credit – Good credit means better mortgage rates. Review your credit reports and improve your score if needed.
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Save for a down payment – Have funds for at least 10% down payment, if not 20%. More down means lower rates.
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Reduce debts – Pay down debts so you have lower DTI ratio and qualify for more favorable rates.
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Consider ARM – 10/1 ARMs offer low rates for 10 years if you may move before payoff.
The Bottom Line
A 10-year mortgage lets you pay off your home faster and save on interest compared to a 30-year loan. However, the monthly payments are much higher.
Look at your budget, plans, and goals to decide if it makes sense or if you should opt for a longer term. Shop lenders to find the best rates and terms for your situation. With the right prep, you can land a 10-year mortgage that fits your needs.
Conventional 15- or 30-Year Mortgage
If you’d prefer lower monthly payments, opting for a conventional loan with a longer term, such as 15 or 30 years, could be a good choice. Just keep in mind that these loans generally come with higher interest rates compared to 10-year mortgages, which means you’ll pay more in interest over time.
You could also consider a loan backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) or Department of Veterans Affairs (VA). FHA and USDA loans are generally geared toward borrowers with lower incomes and poorer credit scores as well as first-time homebuyers. VA loans, on the other hand, are meant for active and veteran service members and their surviving spouses. These loans also require little to no down payment, depending on the program. While government-backed loans can come with shorter terms, you also have the option to choose a longer, more affordable term if you’d prefer.
How To Pay Off a Mortgage in 10 Years
You can get a 10-year mortgage from just about any lender. But you might consider sticking with a longer-duration mortgage and paying extra each month instead. This is because the monthly payment on a 10-year mortgage will be significantly higher than one for a 30- or 15-year fixed-rate mortgage. If you have any financial problems down the road—unexpected medical bills, job loss—the flexibility to pay a little less each month will help. There are a few strategies that will help you pay off your mortgage early. You can pay more toward your mortgage principal with every payment you make, opt to make bi-weekly mortgage payments or make lump sum payments whenever you have the means.
Is a 10 Year Term Mortgage Right For You?
FAQ
Is it smart to do a 10-year mortgage?
Borrowers may prefer a 10-year mortgage to save on total interest paid. This could be a good option for buyers with higher incomes who can afford larger monthly payments with money still left over for savings and other expenses.
Is it a good idea to get a 10-year fixed mortgage?
Whether or not a 10-year mortgage is right for you will depend on your personal circumstances. If you think it’s likely you’ll stay in your property for at least a decade and you would like the security of knowing your payments will stay the same during that time, it may be a good option.
Is a 10-1 ARM a good idea?
If you plan on moving or refinancing your home within the first decade, then a 10/1 ARM might be a good option: You’ll reap the benefits of a lower starting rate during your first ten years and then be able to explore other financing options before your rate potentially increases.
What is the best length of a mortgage?
Although 25 years is the most common term chosen for mortgages, it’s important to remember that you can choose whatever term you feel comfortable with. Whilst not always the case, the objective for most people is generally to pay the debt off as early as possible without putting yourself under undue financial pressure.