10 Year Fixed Rate Mortgage

If you are looking to pay off your loan as fast as possible, but with the security of a fixed interest rate, a 10-year fixed rate mortgage might be the best mortgage option for you. These loans have a shorter term than the traditional 15- or 30-year mortgage and tend to have the lowest mortgage rates of all the fixed rate home loan products. Also, since the duration of the mortgage is shorter, you are likely to save thousands of dollars in interest over the life of the loan.

10-Year Fixed Rate Mortgages Versus Long-Term Mortgages

So why is it that most people don’t take out a ten year home loan? Often, it’s because the shorter duration of the loan means the monthly payment will be significantly higher. Since there is much less time to pay off the principal balance, it is divided up into fewer payments, which means more money is required on a monthly basis to repay the loan.

For example, let’s say you borrow $100,000 with a mortgage interest rate of 5.5 percent over a 15-year term. Your total monthly principal and interest payment would be $817.08, so the total interest paid over the life of your loan would be around $47,000.00.

Now let’s say you borrow that same amount of money on a 10-year fixed term. Your interest rate would be lower– somewhere around 5.36% APR–and you monthly payment would be much higher at $1,079.33. However, the total interest paid over the life of the loan would be around $29,500.00, which results in a substantial savings in interest over the term of the mortgage.

Alternative to Line of Credit

One popular use for the 10-year home loan is as an alternative to taking out a line of credit against your house. This type of loan is called a cash-out refinance. If you have paid of most or all of your first mortgage, it may be worthwhile to consider the benefits of a second mortgage like this one since the ten-year fixed mortgage will most likely have a lower rate of interest than a line of credit or an adjustable rate mortgage (ARM) loan.

If you are considering applying for a line of credit or a second mortgage, ask your mortgage broker to run some numbers and see if this option is right for you. If you’re buying a home, however, you may find that a longer term fixed rate mortgage will better fit your budget.