How does a 10-year mortgage work?
A 10-year mortgage is a fixed-rate mortgage allowing a loan term of 10 years. It means, for 10 years, your interest rate will be fixed.
A 10-year mortgage typically has lower interest rates, and you can pay off your mortgage loan faster. However, your monthly payments will be higher than for a longer-term loan.
Compared to the other mortgages, a 10-year fixed-rate mortgage has the shortest home loan term. It may be a good home loan for borrowers with a high income wishing to pay off their mortgage faster.
A 10-year mortgage is also good for a mortgage to refinance. If you have only 10 years left on your existing mortgage, you can refinance it into a home loan with better terms. This way, you can save on interest payments.
There is also a 10-year adjustable rate mortgage. It is not as widely available as the fixed-rate mortgage, and the loan term is longer than 10 years. You will get 10 years of fixed interest rates, and after that, the interest will be adjusted according to the Prime Rate.
Pros and cons of a 10-year mortgage
Pros
You can pay off your mortgage faster.
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Other home loan options require 30 years or 20 years of monthly payments. A 10-year mortgage allows you to get a lower interest rate and make fewer payments.
Predictable monthly payment amounts.
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If you take a fixed-rate mortgage, your monthly payment will be predictable. The payment will be the same each month.
Lower interest rates.
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You can qualify for a lower interest rate because you borrow for a shorter time. Such loans have less risk, and lenders are more willing to lower their rates.
Cons
Higher monthly payments.
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As your mortgage has a loan term of only 10 years, you will make higher monthly payments than for a longer-term loan.
Smaller loan amount.
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Because you will need to make a larger monthly mortgage payment each month, you may not be able to take a higher loan amount.
Qualifying for a 10-year mortgage
If you qualify for a 10-year mortgage depends on the mortgage type you choose. Government-backed loan offers, there may be additional criteria, like the type of residence of a down payment amount.
Generally, your creditworthiness is determined by your income, a debt-to-income (DTI) ratio, and a credit score. The down payment amounts depend on the home loan type you apply for. The VA loans do not have a down payment requirement for the borrowers.
To prove a steady source of income, you need to provide pay stubs, bank statements, and W-2 forms. The lenders have stricter requirements for self-employed applicants. They will need to submit two years of tax returns.
How to get the best 10-year mortgage?
You can compare mortgage rates from different lenders. These can be banks, mortgage brokers, credit unions, and online lenders.
You can use a mortgage calculator to get the estimated monthly payment amounts. There will also be the amount of interest you will overpay. The calculations will help you decide if the mortgage offer is suitable for you.
Once you have decided on the lenders you want to apply to, review your credit profile. The 10-year mortgage lenders want their applicants to have higher income and a credit score. If you cannot qualify for some banks, try to find mortgages from online lenders. However, if you have a lower credit score, you will get a higher interest rate.
If the lender has a pre-qualification procedure, opt for it. You will get an estimate of your monthly payments, interest rates, and fees according to your situation. Pre-qualification will not hurt your credit profile because it entails a soft credit check.
After you have received a positive decision on your pre-qualification with some lenders, you can gather documents with the help of a loan officer and submit an application. Mortgage loans usually take longer to get approved because you need an appraisal. You can receive funding from 10 to 45 days, depending on your lender.
If you are looking for a longer-term mortgage and pay it off faster, you can compare the options. Input the mortgage terms you want to take and a 10-year mortgage terms into a calculator. When you make payments, ask your lender to apply the extra payments to your monthly principal balance. This way, you can pay aggressively and reduce your loan amount faster rather than sticking to the interest payment strategy.
Good 10-year mortgage rates
The mortgage rates vary depending on the lender. They can change every day. The interest rate you will get depends on your credit history, the loan's total cost, the loan-to-value ratio, and the lender. This makes customized quotes with different lenders a top priority to receive the best mortgage rates.
Fixed-rate mortgages have different interest rates than adjustable-rate mortgages. ARM loan has a lower initial fixed-rate period of interest rate. However, once a fixed-rate period is over, mortgage rates tend to rise.
Good mortgage rates for 10-year mortgages currently are 5.7% for qualified borrowers. The annual percentage rate, in this case, will be around 5.75%. The rates for a mortgage refinance will be higher.
Alternatives to a 10-year mortgage
Conventional 15- and 30-year mortgages
You can lower your monthly payment amounts with longer-term loan options. They have higher mortgage interest rates, but each month you will pay less than for a 10-year fixed mortgage. If you do not have sufficient funds to cover higher monthly payment amounts, you can benefit from longer-term mortgages.
Before you apply for such loans, make sure you can pay for mortgage insurance premiums, if there are any. Check the late payment, prepayment, and origination fees. They can make your loan more expensive. There are also may be requirements for mortgage points, or discount points, that a borrower pays directly to the lender as fees.
Government-backed mortgages
There is a set of government-backed home loans. You can apply for an FHA loan, USDA loan, or VA loan.
Federal Housing Administration and US Department of Agriculture mortgages are designed for lower-income borrowers, applicants with lower credit scores, and first-time homebuyers. Veteran Affairs loans are for active and veteran service members and their spouses. VA usually loans do not require a down payment.
The maximum loan term you can get on government-backed loans is 30 years. You will generally get the same interest rate as conventional loans.
