10 Year Fixed Rate Mortgage

September 16, 2013

 The little-known mortgage that could save you big...

Practically everyone has heard of the 30-year home mortgage, and probably the 15 year mortgage too. But did you know that there is such thing as a 10-year, fixed-rate mortgage? For some people this can offer big advantages.

Some of the advantages include lower interest rates and enormous savings in the amount of the total interest paid over the life of the mortgage says mortgage banker with Cole Taylor Mortgage in Atlanta, Georgia: Jim Duffy. But he also add that because you are paying the principal of the mortgage down in a third of the amount of the time you would a 30-year mortgage, the month payment will be higher. 

“Still they have become more popular. I’ve done more 10-year mortgages in the last year than I’ve done in 10 years prior,” says Duffy. 

Here are four reasons why that trend may catch on.

#1-The Interest Rate on a 10-year Loan is Much Lower (Compared to 30-year loan)

Like most people, you refinance your mortgage for one main reason, which is to save money. So understandably people usually focus on how their interest rate will affect their monthly payment.

But focusing on the monthly payment alone can be detrimental to your wallet. For example, even though the monthly payment on a 30-year mortgage than you will on a 10-year. This is crucial to understand as the total interest, plus the purchase price of your home, is the true cost of your home. 

So how much can you save in interest with a 10 year-mortgage vs. a 30 year loan? If you look at the chart below depicting the average interest rates from August 13th, 2013 from the PNC bank. It is comparing a 30-year loan at an interest rate of 4.375 percent, with a 10 year loan at an interest rate of 3.125 percent for a loan amount $300,000.

30 Year Mortgage

10 Year Mortgage

Loan Amount



Interest Rate

4.375 percent

3.125 percent

Monthly Payment 



Total interest Paid



As you can see the numbers don’t lie. If you can afford the higher monthly payment, you’ll have almost a whopping $190,000 over the life of their loan. 

#2-Refinancing to a 10-Year Loan Won’t Rest the Clock

Traditional wisdom says that if you’ve got fewer than 20 or 15 years left on your 30 year mortgage, refinancing probably should be avoided. Thats because refinancing to another 30 year mortgage resets the clock on your mortgage.

But refinancing to a 10 year mortgage with a low interest rate could turn that logic  on its head. Thats because most people who have only 15 or so years left on their mortgage probably have an interest rate much higher than todays historically low rates. Interest rates were a lot higher 15 years ago, and homeowner who haven't refinanced at all could still be stuck with these high rates. 

For example, the interest rate for a  30 year fixed rate mortgage in January of 1995 was 9.15 percent according to the Federal Reserve board. 

#3-You Can Build Equity Faster With a 10- Year Loan.

Refinancing to a 10 year fixed rate mortgage through a program like HARP, a government program that helps homeowners refinance their underwater homes, is one move that has helped more than a few people in the same situation. 

By refinancing to a 10 year mortgage, you can build equity faster and own enough of your home so that its not underwater anymore when it comes to trying to sell it. The added benefit is that you can usually get a lower interest rate when you refinance and save a lot on interest as a result. Secondly you can make extra payments without refinancing but many know they wont have the discipline to put that money aside.

#4-A 10 Year Loan Allows for a Stress-free Retirement 

The 10 year mortgage may be the right move if your nearing retirement. 

For a lot of people their monthly mortgage payment is their biggest expense. Of course, when your’e working that may not be a big deal. But what about when you retire and you start seeing less income?

The payment could become quite a burden, making your sunset years not so sunny. It could worsen and could force you to sell your home, or put off retirement. Homeowners approaching retirement, it would be more beneficial to pay more in a monthly payment while you’re still working and producing income than still have payment when your retired. 

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