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What is a 10-year fixed-rate mortgage?

A fixed 10-year mortgage is a loan with a term of 10 years whose interest rate stays the same for the duration of the loan. For example, on a 10-year fixed-rate mortgage for a home valued at $300,000 with a 20% down payment and an interest rate of 3.75%, the monthly payments would be about $2,401 (not including taxes and insurance). Because the home loan is fixed, the interest rate (and the monthly principal and interest payment) stays the same for the 10-year term.

How does a 10-year fixed-rate mortgage compare to a 5-year ARM?

A 10-year fixed mortgage has an interest rate and monthly payment that will stay the same for a 10-year term, while a 5-year ARM (adjustable rate mortgage) has an interest rate that is fixed for an initial 5 years, and then a variable rate for the remainder of the loan term. While a 5-year ARM generally has a lower initial rate, a 10-year mortgage has a shorter loan term. Therefore, a 5-year ARM may save you more on interest during the initial fixed period, but a 10-year mortgage will save you more on interest over the life of the loan.

Is a 10-year or 15-year mortgage better?

A 10-year fixed-rate mortgage has relatively the same advantages and disadvantages as a 15-year fixed-rate mortgage. The most obvious difference is that a 10-year mortgage will have a slightly higher monthly payment over the life of the loan, and you will theoretically pay less in interest compared to a 15-year mortgage.

For example, for a home valued at $300,000 with a 20% down payment and an interest rate of 3.75%, the monthly payments on a 10-year fixed-rate mortgage would be about $2,401 (not including taxes and insurance). For a 15-year fixed-rate mortgage with an interest rate of 3.00%, the payment would be about $1,657. If you’re able to afford the higher monthly payments, the 10-year mortgage may be the better option since you’ll pay less interest over the life of the loan.

Should I refinance to a 10-year mortgage?

Typically, refinancing to a 10-year fixed-rate mortgage is best when the potential savings outweigh the closing cost fees, which can range from 2% to 6% of the loan’s principal amount. You may consider refinancing to a 10-year mortgage to save on interest and pay off the loan faster. Since monthly payments are much higher with a 10-year mortgage compared to longer term loans, make sure that your monthly budget can comfortably support the increase. You can calculate how much you’ll save in interest and subtract it from the fees to determine if refinancing to a 10-year mortgage is financially worthwhile.

With a 10-year fixed mortgage, you can pay off your home and build equity much faster than with the more common 30-year fixed-rate loan. The interest rate on a 10-year mortgage is typically lower than on a 30-year home loan, and because the money is borrowed over 10 years instead of 30, you pay significantly less interest over time.

However if considering a 10-year fixed over 30, keep in mind that the 10-year mortgage has a higher monthly payment. For example, on a 30-year mortgage for a home valued at $300,000 with a 20% down payment and an interest rate of 3.75%, the monthly payments would be about $1,111 (not including taxes and insurance). But for a 10-year fixed-rate mortgage with an interest rate of 3.00%, the payment would be about $2,317. The higher monthly payment also means you’ll have less house affordability when it comes to qualifying for a mortgage.