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10-Year Mortgage Loan: Not for Everyone

10-Year Mortgage Loan: Not for Everyone
Betsalel Cohen
UpdatedJun 20, 2024
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    4 min read
Key Takeaways:
  • A 10-year mortgage loan is an option if you have strong and steady income.
  • You will pay less overall interest, than a regular 30-year mortgage.
  • Check your budget carefully and make sure that you can make the monthly payments.

10-Year Mortgage Loan - The Sprint to the Finish Line

If you have good income, a stable cash flow and you want to build equity in your house, then a 10-year mortgage loan is an option to consider. A short-term mortgage loan is not common but you will finish your loan quickly.

Generally, borrowers take mortgage loans for long periods. The most common mortgage loan is a 30-year mortgage loan, followed by a 15-year mortgage loan. A 10 year fixed rate mortgage loan is rare, because the payments are much higher.

Before taking a 10-year mortgage loan, consider the following factors:

  • What is the Monthly payment for a 10-Year Mortgage Loan?
  • Pros and Cons of a 10-year mortgage loan
  • Making a decision - Can you afford a 10-year mortgage loan?

Monthly Payment for a 10-year Mortgage Loan

Before making a decision, look at how much you monthly principal and interest payment will differ between different mortgage plans. Your decision is a factor of how much you can afford, what the lender will approve, and the length of time you will hold on to the loan. Remember, lenders have debt-to-income guidelines, which you must meet. Even if you think that you can make the payment, you must meet their requirements. That means your total housing (mortgage payment, property insurance, property taxes, HOA fees, etc.) must not be more than 36-45% of your total income, depending on the lender's guidelines.

Use the mortgage payment calculator to determine your monthly payment. You can check the mortgage rate sheets to see what the approximate interest rates will be, but you will not always find rates for 10-year mortgage payments.

Here is an example to help you see the difference between a 10-year mortgage loan and a 15-year mortgage loan:

  • House Value: $300,000
  • Down payment: $100,000
  • Loan: $200,000
30-Year FRM15-Year FRM10-Year FRM
Term30 year15 years10 years
Interest Rate3.75%3.5%3.25%
Monthly Payment$926$1,430$,1954
Total Interest Payments$133,443$57,357$34,525

The interest rates are for illustrative purposes only. Make sure that you shop around and compare interest rates together with mortgage fees.

Pros and Cons of a 10-year mortgage loan

Here are some positive benefits of a 10-year mortgage loan:

  1. You have less risk due to a fixed interest rate and payment.
  2. You have a lower interest rate (marginally so), and overall lower financial expense.
  3. You pay off your loan quickly, therefore making an equity investment in your home. It is a good financial plan to build equity in your home so that you do not have mortgage payments when you reach pension age.

Here are some of the negative aspects of a 10-year mortgage loan:

  1. Your payments are higher than a standard mortgage loan, unless you take a low LTV ratio loan.
  2. You may be putting too much of your money into your house and not diversifying your investments.
  3. If you itemize your tax deductions, you may be losing some tax benefits by paying off your mortgage quickly.
  4. You have limited flexibility. Once you commit to a 10-year mortgage loan, you must continue to make the monthly payments, even if you have financial problems. A long-term loan allows you to make lump sum prepayments or accelerated payments, without tying you down to a high fixed monthly payment.

Making a Decision - Can you Afford a 10-year Mortgage Loan

Before making a decision to take a 10-year mortgage loan, ask yourself these questions:

  1. Do I have a steady positive income and cash flow?
  2. Do I want to commit a large sum of money to my mortgage payment, or use it for other investments, or personal consumption purposes?
  3. Is my loan relatively small (high down payment or equity position in the property)?

If you financial situation is strong enough to take a 10-year mortgage loan, then follow these steps:

  • Use the calculator: Deciding on a 10-year mortgage loan is easier than other loans, for the simple reason that you have to be able to afford it to even consider taking it. Run the numbers on the mortgage calculator.
  • Evaluate your budget and financial situation . Make sure that your cash flow will permit you to make payments, even if there are unexpected expenses, or loss of income. Rainy day funds, savings accounts and investment funds are a buffer against that risk.
  • Then shop around. Since interest rates are constantly changing, as is the differential between loans with different terms, it is impossible to say in advance, which is best. However, the shorter the period you hold on to a loan, the less interest you will pay.
Quick tip

get a mortgage quote from a provider. compare different loan possibilities, including a 10-year mortgage loan.

A 10-year mortgage loan is right for some people. However, if you feel too stressed, then take a loan with a longer term. You might consider a 15-year FRM, 30-year FRM, or a 10/1 ARM. Make sure there are no prepayment penalties and you have the option to accelerate payments or make lump sum prepayments.

Mortgage market: a pulse check

No surprise that mortgage rates fluctuate. If you are thinking about purchasing a home or maybe considering refinancing your current mortgage, then you want to be up to date on mortgage rates.

Mortgage rates April 10, 2024
According to Freddie Mac, the 30-year mortgage rate for the week of April 10, 2024 is 6.88%. This represents a 6 basis points increase from the previous week's rate.
Note: A basis point is equal to one-hundredth of one percent (0.01%). In numerical terms, if the mortgage rate changes by 20 basis points, it means the rate has changed by 0.20%.
According to Freddie Mac, the 15-year mortgage rate for April 10, 2024 is 6.16%. This is a 10 basis points increase from last week’s rates.

Understanding the impact of mortgage rates on your finances
When it comes to determining your monthly payment, mortgage rates are a key factor to consider. Here are the avergage interest rates (APR) for April 14, 2024 based on Zillow data for borrowers with a high credit score (680-740) in the United States:

  • 30-year conventional loan is 7.09%
  • 15-year conventional loan is 6.29%
    Based on the provided rates, a $279,082 30-year mortgage would result in a monthly payment of $1,874. Alternatively, a 15-year mortgage would require a monthly payment of around $2,399.

Explore your options and secure pre-approval today!
To make your life easier, we highly recommend shopping around for mortgages and getting pre-approved. This will streamline the home-buying or refinancing process and make it a breeze. Ready to get started? Check Out mortgage rates now for the best options available.