A Complete Guide to 10-Year Fixed-Rate Mortgages

When most people consider buying a home with a mortgage, they weigh up the choice between 15-year and 30-year fixed-rate mortgages, the most common loan terms. But if you’re serious about paying off your mortgage as quickly as possible to reach financial freedom, you’ll be happy to know that a 10-year fixed-rate mortgage is also a viable option.

These mortgages allow you to access an accelerated payoff by benefiting from higher monthly payments. We’ll review everything you need to know about a 10-year fixed-rate mortgage to help you decide if it’s the right choice, including the pros, cons, and how they compare to other mortgage types.

What is a 10-Year Fixed-Rate Mortgage?

Let’s break things down. A fixed-rate mortgage is a loan with an interest rate that remains unchanged for the entire loan duration.

A 10-year fixed-rate mortgage is a variation of this loan type with a ten-year term. As a result, after a borrower makes their monthly payments consistently for ten years straight, they will be mortgage-free. Because the interest rate remains fixed, their monthly payments will be the same for ten years.

How Does a 10-Year Fixed-Rate Mortgage Work?

Understanding the elements determining monthly payments can help you better understand a 10-year fixed-rate mortgage.

These are as follows:

Interest rate: This is expressed as an annual percentage rate (APR) so you can more easily compare rates between lenders.
Term length. The duration of the loan, in this case, is ten years.
Down payment. An upfront payment on the house.
Loan principal. The total amount you pay the house for minus the down payment.

These elements also interact with each other. The higher your down payment and the shorter the term length, the lower the interest rate a lender will offer you. Since a 10-year term is a shorter loan, which is more appealing to lenders, it can help you secure lower rates.

What Else Determines the Interest Rate?

As mentioned, a 10-year fixed-rate mortgage tends to carry a lower interest rate than home loans with longer loan terms, such as 30-year or 20-year mortgages.

However, the mortgage company's interest rate will depend on various factors.

These include:

Your credit history. A score of 760 or above generally results in the best interest rates.
The location of your house. Every state has its laws and regulations regarding mortgages, which can impact interest rates.
Market activity. When the government wants to encourage borrowing, it lowers the funds rate and reduces mortgage rates.
The type of loan you take out. Government-backed loans like VA or FHA loans may have different interest rates from conventional loans.

10-Year Fixed-Rate Mortgage Example

Now, we can look at exactly how these elements come into play with an example.

Let’s take the case of a $250,000 house. A typical 10% down payment would be 25%, or $25,000. This leaves a loan principal of $225,000, which can be used to work out the monthly payments.

A 10-year mortgage term is split over ten years or 120 days. This would mean that, without interest or any other charges, monthly payments would be $1,875. Of course, life is always complex!

Instead, the typical borrower has to tackle interest, private mortgage insurance (PMI), home insurance, and property taxes.

An interest rate of 6% would already bring monthly payments up to $2,497.

According to calculations from Bankrate, you could expect property tax of roughly $165 and home insurance of $66 per month. Plus, PMI is 0.5% to 1.5% of the initial loan principal annually (with the exact percentage depending on individual circumstances), which is around $187 per month.

Therefore, total monthly payments would be: $2,497 + $165 + $66 +$187 = $2,916

Example Without Mortgage Insurance

The above analysis assumes the buyer would be paying PMI. However, PMI only applies when a buyer has a down payment of 20% or less.

With a larger 20% down payment of $50,000, PMI wouldn’t apply.

In this case, total monthly payments would be $2,497.96 + $165 + $66 = 2,729

Types of 10-Year Fixed-Rate Mortgages

Since a 10-year fixed-rate mortgage specifies a loan term and how the interest rate works, all home loans falling into this category are the same.

However, there are a few subcategories.

Government-Backed Loans

The most “typical” case is a conventional fixed-rate loan, meaning that the borrower is solely responsible for making mortgage payments.

However, there are also government-backed loans, which involve the government promising to cover payments if the borrower falls behind. Because this provides extra reassurance to the mortgage company, these loans result in more favorable terms, such as lower interest rates or down payments.

The types of government-backed loans are:

Federal Housing Administration (FHA) loans
Department of Veterans Affairs (VA) loans
United States Department of Agriculture (USDA) loans

Jumbo Loans

Another subcategory is that of jumbo loans, which allow customers to take out a mortgage with a lower down payment than usual (below 10%). These are a kind of non-conforming loan as they don’t meet typical lending criteria.

Jumbo loans are usually only available to borrowers who can demonstrate a good credit history, which entitles them to the privilege of borrowing more.

Pros and Cons of a 10-Year Fixed-Rate Mortgage

Pros	Cons
Pay significantly less interest over the loan’s life	Higher monthly payments due to shorter loan term
Build equity faster	Stricter qualification requirements
A lower loan term may mean a lower interest rate	Restrict most borrowers to more affordable homes (due to higher payments)
Predictable payments facilitate easier budgeting	Less flexibility over budgeting due to high payments

Is a 10-Year Fixed-Rate Mortgage a Good Idea?

10-year fixed-rate mortgages are a less common choice than 15-year or 30-year fixed-rate terms. However, their shorter loan term is fantastic for reducing debt and becoming mortgage-free as quickly as possible — assuming the borrower can secure approval and make their payments.

Those who prefer a little more leeway in monthly payments may choose a standard 15-year loan.

Consider a 10-Year Fixed-Rate Mortgage If:

You prioritize owning your home and achieving financial independence. A shorter loan term will help you achieve this more quickly.
Your finances are relatively stable. If you’re confident in your ability to meet your payments consistently, it will mean you’re more willing to accept the risk of higher costs.
You’re happy to sacrifice a larger, more expensive home to pay off your debt further. In this case, a 10-year loan makes more sense than a longer loan term.
You have the financial profile needed to be approved for a shorter loan term. Due to the higher monthly payments, 10-year fixed-rate mortgages require a better credit score and history.

Is Now a Good Time for a 10-year Fixed-Rate Mortgage?

On FreeRateUpdate, you can track the daily mortgage rates for 15-year and 30-year fixed-rate mortgages and compare them to the rates for 10-year loans.

FAQs

How do 10-year Fixed-Rate Mortgages Compare to Adjustable-Rate Mortgages (ARMs)?

Adjustable-rate mortgages have interest rates that fluctuate over time depending on economic conditions. Sometimes, borrowers with ARMs will pay less than those with fixed-rate mortgages — but other times, they’ll pay more. It’s ultimately the luck of the draw, and a borrower’s choice will come down to risk appetite.

Can You Pay Off a 10-Year-Fixed-Rate Mortgage Early?

Given the short loan term of a 10-year mortgage, most borrowers won’t be looking to repay them even earlier. But for those who are committed to debt reduction, it may be possible to do so. Just check with your lender first if there are any prepayment penalties.

Is It Better to Get a 10-Year or 15-Year Mortgage?

The choice between a 10-year and 15-year mortgage primarily comes down to whether you value reaching financial independence a little faster or having more flexibility over your payment schedule with lower payments.

What are the Risks of a 10-year Fixed-Rate Mortgage?

As with any fixed-rate mortgage, fixing an interest rate for ten years means you could end up with higher monthly payments than you would otherwise if general interest rates in the economy decline after you take out your mortgage. The higher payments also mean there’s a greater risk of default.

What Credit Score Do I Need for a 10-Year Mortgage?

Generally, the minimum credit score needed to qualify for a mortgage is 620. Since a 10-year mortgage term is shorter than usual, an even higher credit score may be required. However, there are exceptions, such as government-backed 10-year loans.