Ten-year mortgage rates can save six figures and help you own your home free and clear sooner than you thought possible.
A decade definitely doesn’t sound as long as 30 years, especially when you are talking about paying back a mortgage. Lenders do offer 10-year mortgages – refinance and purchase loans. The benefits are amazing with much lower rates (almost a whole percentage lower than 30- year loans), and you actually pay off your house in one-third the time. And when you see how much interest you are saving by taking out such a short term loan, your eyes will bug out.
But remember that with such great benefits also come risks. You need to have a bigger budget for much larger payments each month.
“You don’t want to get yourself house poor. It if takes your whole paycheck just to pay your mortgage, then this isn’t the loan for you,” says Andrew M. Baker, the 2015 president of the Michigan Mortgage Lenders Association. He also serves as assistant vice president for mortgage lending at Chemical Bank, Mortgage Group in Kentwood, Mich.
10-Year Loans and your Budget
Those considering getting such a loan need to understand that their budget needs to have wiggle room in case someone in the family has a medical problem or another emergency that sucks extra money out of the budget.
“Just like every loan, you need to qualify on a pre-tax income to see if you’ll have enough money each month. With a 10-year loan, the payments can be dramatically different if you are going from a 30-year loan. You need to be able to prove that you can handle those types of high payments,” he says.
10-Year Mortgage Without the Risk
When Baker has clients come to his office to talk about such a short-term loan, he also shows them longer term loans they will still be able to pay off within the perimeters of a decade.
“I can show them how they can take out a 30-year mortgage with less risks, and how they can chip away at the loan by paying the extra money in principal each month,” he says. “If they want to take a vacation or need to buy this or that, they can skip a few of the extra payments and still be ahead of the game.”
He usually only sees very financial savvy people take out shorter loans. They are more worried about the overall financial outlook rather than their monthly budgets, Baker says.
“We do more 15-year fixed loans, not so much the 10-year loans. We do offer them, though, and occasionally people decide on them. With 15-year loans, the payment shock won’t be as huge, and you can still take advantage of low rates, and pay the loan off in half the time of a 30-year loan while saving a lot of money in interest,” he says.
10-Year Mortgage Interest Savings Comparison
Baker shows examples of the differences in taking out a shorter term loan, including 10- and 15-year loans compared to a 30-year loan when borrowing $200,000.
Mortgage Savings Comparison
*Rates shown are for example purposes only and do not constitute a rate quote. These rates may not be currently available.
“When you can pay off your loan in 10 years, you save 20 years of payments and interest. That’s definitely significant. You basically save $120,000 in interest on a $200,000 loan when you go from a 30-year loan to a 10-year loan,” Baker says.
But he points out that by taking the 15-year loan instead, your payments are $524 less per month which allows you more money in your pocket. Plus, you still are eating away at the principal much faster than on a 30-year loan.
“Right now, a 10-year mortgage is about one full point less than the interest rate on a 30-year fixed loan,” he says.
Common 10-Year Mortgage Borrowers
The clients that look at these shorter terms many times are empty nesters or those who have saved a large down payment. They take the shorter term to take advantages of the low interest rate.
“And many times it’s those that are close to retirement who don’t want to go into their retirement years with a house payment,” he says.
So, they plan ahead and take out a shorter term loan to pay off their house quicker. Others looking into a 10-year mortgage are those who have been in their 30-year loan quite a while.
“With rates being so low now, a lot of people want to refinance. Some have been in their loan quite a while – maybe 15 or 20 years. They only have a small portion left to go on their original loan,” he says. “But they don’t want to start all the way over again with a 30-year loan, especially since you end up paying mostly only interest for many years on a long-term loan.”
10-Year Mortgage Rate Quotes
Mortgage rates in general are very low, and 10-year rates are rock-bottom. Whether the mortgage is to buy or refinance a home, a 10-year mortgage cans save borrowers six figures and put them into a position to own their homes outright much sooner.