What Is A 10-Year Mortgage?

A mortgage loan is a major financial commitment with an extended time period attached. But what if you don’t want to commit to a monthly expense for the next several decades? That’s when a 10-year mortgage could be a perfect choice.

With a 10-year mortgage, you’ll be able to pay off your home in just 10 years. Let’s explore how you can get a 10-year mortgage and uncover whether it’s the right fit for you.

Before we dive into how to get a 10-year fixed mortgage loan, let’s break down what exactly we’re talking about when we say “10-year mortgage.” These are fixed-rate mortgages, meaning you will lock in your interest rate at the beginning of the 10-year term and pay the same rate over the course of the loan.

A 10-year mortgage presents a useful opportunity for homeowners who want to pay off their loan sooner rather than later. Although these mortgages are less popular, they are widely available.

Luckily, most major mortgage lenders offer a 10-year mortgage. That includes Rocket Mortgage®. In fact, one of our products, YOURgage®, allows you to choose any loan term between 8 – 29 years.

What Is A 10-Year ARM Mortgage?

A 10-year ARM mortgage is a type of home loan that is dramatically different from a 10-year fixed-rate mortgage. Instead of a 10-year term that involves repaying the entire mortgage within that time frame, an adjustable-rate mortgage comes with a fixed interest rate for 10 years. After the 10-year mark, the rate will regularly readjust.

For example, two common adjustable-rate mortgage terms are 10/1 and 10/6, with low introductory rates for the first 10 years, then a rate that adjusts every year or 6 months, depending on the loan.

Most of the time, these ARMs aren’t what people are referring to when they say “10-year mortgage” because you’re still paying the mortgage over 30 years (just at a fixed-rate for the first 10 years).

If you are determined to pay off your mortgage early, then refinancing into a 10-year mortgage could be a smart move.  A 10-year refinance rate not only secures you a lower interest rate, but with a compressed repayment schedule, puts you on the fast track to fully owning your home.

It’s a good time to refinance when mortgage rates are lower and your credit and home value have increased. Another good reason to refinance into a 10-year mortgage is if you want to switch from an ARM to a fixed rate.

Refinancing to a 10-year loan can cut the amount of interest you’ll pay. However, it will also increase your monthly payment. Before you finalize anything, make sure to calculate how this increased payment will affect your budget.

A 10-year fixed-rate mortgage is a good option if you can make a sizable down payment and have enough income to cover the monthly payment. Plus, you’ll likely need at least a 620 FICO^® credit score to qualify for this type of mortgage.

While you may have the funds and the credit to qualify, you need to realize that a 10-year fixed-rate mortgage has substantially higher monthly payments than a 30-year. That’s because you’re paying off the mortgage three times faster.

With that, you’ll need a more substantial income to qualify for a 10-year mortgage. The good news is that lenders will look at other reliable sources of income beyond your salary. A few examples might include military benefits, side hustle income, overtime, commissions and more. But keep in mind that most lenders will only consider a particular stream of income if it has continued for at least 2 years.

If you’re concerned a 10-year mortgage may make you house poor, but still want to pay off your mortgage quickly, consider a 15-year loan. The slightly longer loan will still help you achieve your goal of being mortgage-free relatively soon without putting too much of a pinch on your budget.

Plus, you can always choose to make extra payments to accelerate your loan repayment. If you choose this option, make sure that your lender doesn’t have any prepayment penalties attached. You may be able to eliminate your mortgage in 10 years without the pressure of an increased monthly obligation. Instead, you could stick to the lower required monthly payment and simply make extra payments when and if you can along the way.

Keep an eye on the current mortgage rates with Rocket Mortgage’s daily information. View mortgage rates and trends to determine when the best time is for you to apply or refinance for a home loan.

2021 had the lowest mortgage rates of any year on record. While there has been a small uptick in rates in 2022, expect rates to remain low throughout the year.

There ‘s little data on the national average for 10-year mortgages, but by using 15-year conventional mortgages as an example we can see rates have been below 2.8% on average for 2021 and remained low for the year.

Of course, no one can predict the future, but it’s important to learn the signs of changing mortgage rates as a home buyer.

There isn’t much historical data on 10-year mortgages due to it not being a very popular option. However, there is historical 15-year fixed-rate mortgage data, which can get you close to the idea of what to expect for a 10-year fixed.

When Freddie Mac introduced the 15-year fixed-rate mortgage in September 1991, the average rate was 8.69%. It wasn’t until the early 2010s that average 15-year rates dipped below 4%.

Since 2016, they have ranged from a yearly average of 4% in 2018 to a low of 2.61% in 2020. In fact, they saw their historic lowest at the end of 2020 and start of 2021, with rates averaging around 2.1% between December and January.

You can expect average 10-year mortgage rates to be at or lower than the rates of the average 15-year. As you search around for the best rate, 15-year mortgages will serve as a useful comparison point.

While comparing mortgage rates between different lenders, it can be useful to calculate your debt-to-income (DTI) ratio and get preapproved to understand what monthly payment you can afford.

Let’s run through an example to show you the differences between a 10-year mortgage and a 30-year mortgage. Note, for this example, we’re not including closing costs, home insurance or property taxes. We’re just breaking down the payments based on the interest and loan amount. With that, your actual monthly payment and total cost will be a bit higher than the number you see in the chart below.

As you can see, with the same loan amount and accounting for an average interest rate for each loan, there are some big differences between a 10-year and a 30-year fixed-rate mortgage.

First off, with a 10-year, your monthly payments are more than double what a 30-year would be. The reason they’re not triple lies in the interest. The 10-year has a lower interest rate and is paid over a term that’s much shorter.

That’s where we come to the second big difference. The 30-year mortgage pays nearly $78,000 more in interest over the life of the loan. While the monthly payment is much lower, a greater percentage of the payment is in interest. Even if you got a 15-year fixed-rate mortgage at 2.25%, you would still pay $15,000 more in interest over the course of the loan.

As you can see, it’s entirely possible to save thousands of dollars in interest payments by going with a 10-year mortgage. However, because of the shorter term, you’ll be responsible for a larger monthly mortgage payment.

There are many loan options out there besides a 10-year conventional fixed-rate mortgage. For example, FHA Loans are great options for home buyers with a lower credit score that come with a choice between 15- and 30-year fixed-rate terms, as well as adjustable-rate mortgages.

With an FHA loan, you may only have to put down 3.5% with a credit score as low as 580. But you can still qualify with a credit score as low as 500 if you put 10% down. The minimum credit score for an FHA loan at Rocket Mortgage is 580.

On the other hand, if you’re interested in buying a more expensive property and have the credit score and cash reserves to do so, a jumbo loan may be the option for you. Jumbo loans come in a variety of terms and repayment schedules, and they can be fixed- or adjustable-rate loans.

Ultimately, the best alternative to a 10-year fixed-rate mortgage may be a 15-year fixed-rate mortgage. It splits the difference between a 30- and a 10-year mortgage, with a more manageable monthly payment and significant savings on interest.

If you are happy with your current interest rate and your lender does not have any prepayment penalties, you could also pay more than your regular monthly payment and request that your lender apply that extra money toward principal reduction. Otherwise, the lender may count the extra payments as your next monthly payment, which would cause you to miss out on any interest savings.

Another popular option is to take out a 30-year mortgage and put the extra money you would use on your payment into an investment account. This could be risky, depending on the details of your portfolio. But it could make you more money than the difference in interest paid between a 10-year and 30-year mortgage. It’s something to discuss with your financial advisor if interested.

A 10-year fixed-rate mortgage is a great option for those who want to pay off their mortgage quickly and have the funds to do so. It’s important to remember that 10-year fixed-rate mortgages shouldn’t be confused with 10/1 or 10/6 ARMs, which are 30-year mortgages that have an introductory fixed interest rate period of 10 years.

If you can afford to make a large down payment and a high monthly payment, a 10-year fixed-rate mortgage can save you big-time on interest when compared to a 30-year mortgage. The greater the amount the mortgage is, the more you can save in interest.

Of course, a high monthly payment is not necessarily sustainable for every homeowner. It’s important to remember you have options and can always refinance to a 10-year mortgage later when you have the income to support a higher payment.

Are you ready to move forward with a refinance to a 10-year mortgage? Take action today and apply online.