10-year Mortgages and 10-year Mortgage Rates

Why consider a 10-year mortgage?

"We do a lot of 10-year loans and even nine and eight-year loans, but these are predominantly to borrowers doing refinances rather than purchases," says Bill Banfield, vice president of Quicken Loans in Detroit.

Banfield says the main reason homeowners choose a 10-year home loan is that "they don't want to go backwards" by refinancing into another 15 or 30-year loan when they have already paid their mortgage for years.

Who chooses a 10-year mortgage?

Data from Fannie Mae and Freddie Mac covering late 2021 indicates that fixed-rate mortgages with terms of 30 or 20 years represented about 74% of all refinance originations; 15-year fixed-rate mortgages (FRMs) made about 25% more, and other terms -- predominately 10-year FRMs -- made up the rest of the loans they backed, totaling about one percent of all refinances.

Of course, that's of the loans that Fannie and Freddie bought, not necessarily how many 10-year fixed-rate mortgages were made to borrowers during that time. Many smaller banks and credit unions originate 10-year FRMs but don't sell them to Fannie or Freddie, but rather keep them on their books. A more likely percentage of the total market might be that closer to 2 percent of all homeowners choose a 10-year loan term when they refinance.

Fewer borrowers opt for 10-year mortgages for home purchases because the mortgage payment is higher due to the compressed repayment period, and a higher monthly mortgage payment limits the loan amount that a given-sized income can support. That said, shorter-term loans tend to be more popular when mortgage rates are low, since a low interest rate helps to offset some of the higher required monthly payment the shorter loan term creates.

Is a 10-year home loan right for you?

"Ten-year loans are meant for a very specific audience, either people who have been in their home a long time, such as 18 years and have only 12 years left on their mortgage, or homeowners who started with a shorter term loan to begin with," says Keith Gumbinger, vice president of HSH.com. "They might also appeal to a trade-up homebuyer who needs a relatively small loan amount to complete their purchase."

Are 10-year mortgage rates lower than other mortgage rates?

While interest rates vary, 10-year mortgage rates may be about one-eighth to one-quarter of one percentage point lower than the rate on a 15-year mortgage, says Gumbinger.

For example, on a $200,000 15-year fixed-rate loan at 2.5 percent, you would pay $40,044 in total interest, but with a 10-year loan at 2.25 percent, you would save $16,514 in interest over the life of the loan and have five fewer years of loan payments. However, the monthly payment on the 10-year mortgage would be $529 higher.

"In spite of the higher payment, there's a big advantage to paying off your mortgage balance quickly, especially if people want their mortgage gone by the time they retire," says Banfield.

Since these loans often end up in lender portfolios, there can be wide variances in rates and fees from one lender to the next, and borrowers who want a 10-year fixed-rate mortgage should include local mortgage lenders when they shop.

Related: Calculate payments for 10 year home loans

Since most homeowners are often refinancing older, higher interest rate mortgages that have been paid down for a while, the difference in monthly payment might not be that difficult to overcome since the loan amount being refinanced is smaller, notes Gumbinger. "If a homeowner is 13 years into an existing 30-year mortgage at 4.5% and refinances to a new 10-year mortgage at a 2.5% rate, the monthly payment climbs only $336 per month, and rising incomes since they bought their home might be sufficient to cover the increase."

Banfield says that some homeowners opt for a 10-year cash-out refinance to make home improvements without extending their loan repayment term. Also, downsizing homebuyers who make a significant down payment on their new home may choose to finance the balance with a shorter-term loan, says Gumbinger.

For someone with a home that's paid off, a cash-out refinance using a 10-year mortgage may offer them a lower interest rate than they could get on a home equity line of credit -- and also has the benefit of being a fixed interest rate, which means the monthly payment for principal and interest will never change.

Qualifying for a 10-year loan

Banfield says that qualifying for a 10-year loan requires the same credit scores and documentation as a 30-year mortgage. However, the higher monthly payments do require borrowers to have sufficient income to repay the loan to that they a lender's maximum debt-to-income ratio requirement, typically 43 percent.

How much do more I need to earn to qualify for a 10-year FRM?

For example, on a loan balance of $160,000 (assuming 20 percent home equity in a $200,000 home and typical tax and insurance costs), $79,031 in income is required for a 10-year loan at 2.25 percent interest, about 30 percent more than the $60,888 needed for a 2.5%, 15-year loan, says Gumbinger.

Alternatives to a 10-year mortgages

Even if the idea of paying off your mortgage in a decade is appealing, the higher monthly payments may make it impossible to qualify for the loan or you may just not want to tie yourself to the inflexibility of 10 years of higher payments.

"People at their peak earning years may feel confident about their ability to handle a 10-year loan, but I always caution people to be fully prepared for the unexpected turns life can take," says Brian Koss, executive vice president of the Mortgage Network in Boston. "Equity is great, but you can't eat it. If your income drops or you suddenly have to take care of your parents or pay for a big wedding, it can be tough to keep up those payments."

Koss recommends taking out a 15-year loan and setting cash aside to make extra payments if you're able.

"The one drawback to a 10-year loan is that you're obligated to make the higher payment, limiting your budgetary flexibility," says Gumbinger. "You're committing more of your money to an illiquid asset. While involuntarily paying down your mortgage with a short loan can be good for some people, if you have the discipline to make your own extra payments that gives you greater control."

You might be tempted to think that an adjustable-rate mortgage would be an alternative to a 10-year fixed-rate mortgage, but that's not the case. While interest rates can be lower on ARMs, virtually all ARMs have total loan terms that run a full 30 years, so the interest-saving benefit of the shorter amortization period is lost.

Shop around and compare 10-year mortgage rates and fees and check out the "It's My Term" prepayment calculator to see if you can achieve your monthly payment and loan payoff goals through prepayments.

Scroll down to see today's 10-year mortgage rates