In recent years we have seen mortgage rates near all-time historic lows. With this drop in rates, many people have taken advantage of low 10 year mortgage rates to refinance their homes and shorten the time needed to pay off their loans. With a 10 year mortgage the consumer repays their principal and interest in just a 120 month time span. When you begin to calculate the amount of savings in interest when compared to other fixed rate mortgage products, 10 yr home loans begin to look very appealing.
Let’s take a look at an example (for illustrative purposes only):
10 Yr Fixed Rate Mortgage
$250,000 Loan Amount
Note Rate of 4.000%
Monthly Principal and Interest Payment: $2,531
Estimated Interest Paid Over 10 Years: $53,735
Interest Saved Vs. 30 Year Home Mortgage = $179,406
Interest Saved Vs. 20 Year Mortgage = $88,106
Interest Saved Vs. 15 Yr Mortgage = $34,789
30 Year Fixed Rate Mortgage
$250,000 Loan Amount
Note Rate of 5.000%
Monthly Principal and Interest Payment: $1,342
Estimated Interest Paid Over 30 Years: $233,141
20 Year Fixed Rate Mortgage
$250,000 Loan Amount
Note Rate of 4.875%
Monthly Principal and Interest Payment: $1,632
Estimated Interest Paid Over 20 Years: $141,841
15 Year Fixed Rate Mortgage
$250,000 Loan Amount
Note Rate of 4.250%
Monthly Principal and Interest Payment: $1,880
Estimated Interest Paid Over 15 Years: $88,524
Assessing the Pros and Cons
The proceeding example gives you an idea of just how much a person can save over the life of a home loan. So, why doesn’t everyone take out a 10 year mortgage? It’s pretty simple. When you have to repay a loan in a third of the time that it would take than with a 30 yr home loan, it’s likely not surprising that your monthly payments are going to be considerably higher. For many homeowners, a 10 yr mortgage is simply not a realistic financial option. One solution may be for a home buyer or homeowner to take out a 15 year mortgage and then make additional principal reduction payments whenever possible. The added payments can help the borrower pay off their loan faster while allowing them the flexibility to make their lower 15 year mortgage mortgage payments as needed. The bottom line is that is you can afford the higher payments associated with a 10 yr mortgage, you could like save a considerable sum during the course of of your loan.
Always be sure to consult with a licensed mortgage and tax professional before making any major financial decision. Best of luck getting a great deal on your next home loan.