The 10-Year Fixed Rate Mortgage

Not everyone knows that fixed rate mortgages come with terms other than 15 and 30 year. One such “oddball” fixed loan is the 10-year fixed mortgage.

What Is It?

The ten-year fixed mortgage is repaid (amortized) in just ten years. When you make monthly payments on a fixed mortgage, part of the payment covers the previous month’s interest charge, and the rest goes toward reducing your mortgage balance. Over time, less is needed for interest and more goes to paying off your loan until it’s completely repaid.

With fixed rate mortgages, the interest rate (and the principal and interest payment) do not change over the life of the mortgage.

What’s Great About It?

The 10-year loan builds equity very quickly and minimized the interest you pay during the term of the mortgage. The interest rate should be lower than that of 15-year loans.

What’s Not Great About It?

Your payment is significantly higher than that of a 15-year mortgage. Make sure that you can safely afford it before committing to a loan of this type.

The table below shows the difference between the payment and total expense for 10, 15, 20 and 30-year loans, assuming a four percent rate for the 30-year mortgage, a 3.75 percent rate for a 20-year program, a 3.5 percent rate for a 15-year loan and 3.25 percent for a 10-year loan.

Years Financed 10 15 20 30
Interest Rate 3.25% 3.50% 3.75% 4.00%
Monthly Payment $1,012.45 $739.69 $605.98 $477.42
Total Interest Paid $21,494 $33,144 $45,435 $71,870

Who Is it For?

The 10-year fixed rate home loan is the right mortgage for people who want to retire their mortgage as quickly as possible and who have the income to safely do it.

How Do You Get One?

Finding 10-year loans is more difficult than finding 15-or 30-year mortgages. Shopping online can make it easier to contact more lenders and compare quotes for 10-year home loans.

NOTE: When shopping for a 10-year mortgage, make sure that you’re being offered a lower rate than what’s available for a 15-year mortgage. With fewer loans available and less competition, there’s no guaranty that the rate is lower than available 15-year offerings. If the 15-year loan is cheaper, choose it and simply make larger payments to retire the mortgage in ten years.

In addition, check out the rates on 10-1 hybrid ARMs.  If they are lower than 10-year fixed mortgages, you can opt for the ARM and pay if off in ten years instead of 30.

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