If you're approaching retirement with a steady income, the 10-year fixed-rate mortgage may be a good choice. This may be ideal for those looking to close out their mortgages sooner rather than later. However, it's vital that anyone considering this loan be prepared for retirement with a healthy retirement fund.
A lower debt-to-income ratio is preferred, although some loan programs allow a debt-to-income ratio as high as 50 percent. “When given a choice between 10 and 15 years, most clients opt for the 15-year mortgage as the rates are usually identical,” wrote Trott.
10-year loans typically have lower interest rates than other mortgages, and because you're paying the balance off sooner, you'll pay significantly less in interest. But it's harder to qualify for a 10-year mortgage, and you need to be sure you can comfortably afford the larger monthly payments.
Compare current 10-year mortgage rates. On Tuesday, July 05, 2022, the national average 10-year fixed mortgage APR is 4.850%. The average 10-year refinance APR is 4.810%, according to Bankrate's latest survey of the nation's largest mortgage lenders.
Refinancing to a 10-year loan makes sense when you've been paying off your mortgage for many years, or for homeowners who want to get really aggressive with their repayment. Refinancing into a 10-year mortgage can allow you to secure a lower interest rate without extending your repayment term.
It's usually better to make extra payments when:
If you can't lower your existing mortgage rate, a refinance likely won't make sense. In this case, paying extra on your mortgage is a better way to lower your interest costs and pay off the loan faster. You want to own your home faster.
Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.
For example, if you plan to live in your house for eight to 10 years, taking out a 10/1 ARM (where the introductory rate lasts 10 years) is more cost-effective. A 10/1 ARM is usually between 0.25% to 0.5% less expensive than a 30-year fixed-rate mortgage.
After the fixed period expires, the mortgage rate can adjust based on the current market landscape. A 7/6 ARM is an adjustable-rate loan that carries a fixed interest rate for the first 7 years of the loan term, along with fixed principal and interest payments.
Expect the 10-year Treasury yield to peak at 3.5% sometime this year, before dipping back to 3.0% by the end of 2022. The rise in the 10-year rate will also push up mortgage rates, from the current average of 5.4% for 30-year fixed-rate loans, to just below 6.0%.
The interest rate on a 10-year fixed-rate mortgage is usually lower than the interest rates on 30-year fixed rate mortgage. When you have a lower interest rate, that means more of your monthly payments go toward paying down the principal of the loan, rather than chipping away at the interest as it accrues.
A 10-year mortgage presents a useful opportunity for homeowners who want to pay off their loan sooner rather than later. Although these mortgages are less popular, they are widely available. Luckily, most major mortgage lenders offer a 10-year mortgage. That includes Rocket Mortgage®.
Often, he says, people will find that the 10/6 ARM is “the best of both worlds,” giving them a lower interest rate than fixed rate loans such as a 30-year fixed but with more stability than a 5/6 ARM.
On Tuesday, July 05, 2022 according to Bankrate's latest survey of the nation's largest mortgage lenders, the average 10-year refinance rate is 4.780% with an APR of 4.810%.
Though typically a mortgage lasts for around 25 years, you can get longer mortgages over 40 years. At the other end of the scale, short term mortgages can be for as little as six months to two or five years. Lenders have their own minimum terms which vary from no minimum to a 15-year minimum.
A 5/6 hybrid adjustable-rate mortgage (5/6 hybrid ARM) is a mortgage with an interest rate that is fixed for the first five years, then adjusts every six months after that. The adjustable interest rate on 5/6 hybrid ARMs is usually tied to a common benchmark index.
A 10/1 ARM has a fixed rate for the first 10 years of the loan. The rate then becomes variable and adjusts every year for the remaining life of the term. A 30-year 10/1 ARM has a fixed rate for the first 10 years and an adjustable rate for the remaining 20 years.
After that initial period ends, the low rates on these loans adjust, usually increasing. With a 10/1 ARM, your interest rate will remain fixed for 10 years and will then adjust once every year until you pay off your loan, sell your home or refinance your mortgage.
Cons of an adjustable-rate mortgage
Rates and payments can rise significantly over the life of the loan, which can be a shock to your budget. Some annual caps don't apply to the initial loan adjustment, making it difficult to swallow that first reset. ARMs are more complex than their fixed-rate counterparts.
ARMs are easier to qualify for than fixed-rate loans, but you can get 30-year loan terms for both. An ARM might be better for you if you plan on staying in your home for a short period of time, interest rates are high or you want to use the savings in interest rate to pay down the principal on your loan.
Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
While mortgages can be refinanced immediately in certain cases, you typically must wait at least six months before seeking a cash-out refinance on your home, and refinancing some mortgages requires waiting as long as two years.