Homeowners and homebuyers looking to secure a mortgage on a home purchase or to refinance in order to take advantage of low interest rates (or to restructure from an adjustable rate mortgage that’s about to adjust to a higher rate) are used to considering options such as a 30 year fixed rate loan or even a 15 year mortgage. However, when current mortgage rates are near historic lows such as we’ve seen in 2010 and into 2011, there are other viable options to take into account.
A 10 year mortgage presents attractive benefits to homeowners and homebuyers in a market with very low mortgage interest rates. This product allows the homeowner to shorten the time in which they can pay off their home loan with principal and interest payments completed in 120 months.
The overall benefit of a 10 year mortgage is that it typically reduces the amount of interest paid on a home loan, resulting in significant savings on interest expenses compared to longer amortizing 30 year fixed rate mortgages or even a 15 year fixed rate loans.
These potential savings in interest expenses on a 10 year mortgage come at a price of higher monthly mortgage payments. Compared to a 30 year fixed rate loan, the homeowner is paying off the loan in one third the time and, in order to do that, they have to pay more money in that time-frame.
If a 10 year mortgage is not a realistic option due to the higher monthly payments, then there are some alternative scenarios that may provide similar results on a relative scale. For instance, if a homebuyer can afford the payments on a 15 year fixed rate loan with some cushion built in, then they may be able to make additional principal reduction payments every month, quarter or whenever possible. This scenario may help a consumer payoff their loan more rapidly. This mortgage scenario allows for the lower monthly payments of the 15 year loan with some flexibility to pay off the loan in a shorter amount of time with less interest paid overall.
Making a decision between a 10 year mortgage, a 30 year fixed, a 15 or 20 year fixed rate loan, and an adjustable rate mortgage requires a full home budget analysis and long term projection for your earnings and expenses.
It’s important to consult with a licensed mortgage and tax professional before making any major financial decision. A licensed mortgage expert can help make suggestions as to what kind of mortgage product best suits your budget and financial portfolio. Your loan officer likely has access to a number of available mortgage programs as well as the current mortgage rates to help you understand the implications of your choice of home loans.
Ask your mortgage professional about the possibility of a 10 year mortgage for your refinance or next home purchase. When the monthly payments are calculated based on current mortgage rates, you should be able to project whether or not this is a viable option for you.