How does a 10-year ARM work?
Should I refinance a 10-year mortgage?
What is better, ARM or fixed-rate?
As a potential homebuyer, you need to weigh the risks of taking out a mortgage before embarking upon this critical financial journey in your life. The first thing to understand is that there are two primary types of mortgages: adjustable-rate (ARM), which changes over time based on the market interest rate index, and fixed, which will never change during your loan term.
On the one hand, adjustable-rate mortgages (ARM) tend to charge lower interest rates at the outset of the term. But note, you may regret your decision if the rates suddenly jump later in your borrowing term. On the other hand, if you choose a fixed mortgage rate, you have the peace of mind of knowing that you’ll be making identical payments throughout the term. But if the market rates fall at some point during repayment, you may realize an ARM was a better option.
Speaking of rates, as of mid-January 2023, the average 10-year fixed mortgage annual percentage rate (APR) is 5.92%. The average refinance rate is 5.94%, according to a Bankrate survey of major refinance lenders.
For those reasons, deciding how to finance your new home can be difficult. This article will examine current 10-year mortgage rates to help make your search easier. We’ll also list the pros and cons of ARMs and fixed-rate plans.
Here’s an overview of current 10-year mortgage rates*:
Loan Type | Purchase Rate | Refinance Rate |
10-year fixed | 6.01% | 6.06% |
10/6 ARM | 6.58%% | 6.77% |
*This data represents average national mortgage rates as of Wednesday, January 18, 2023.
A 10-year fixed mortgage isn’t the only option available to finance your new house. There are two more popular options: 15-year and 30-year mortgages. Here’s a comparison of the three types:
Loan Type | Purchase Interest Rate | Refinance Interest Rate | Purchase APR | Refinance APR |
Fixed 10-year Mortgage | 5.90% | 5.92% | 5.92% | 5.94% |
Fixed 15-year Mortgage | 5.79% | 5.93% | 5.82% | 5.96% |
Fixed 30-year Mortgage | 6.46% | 6.53% | 6.48% | 6.55% |
This data represents average national mortgage rates as of Wednesday, January 18, 2023.
Consider the following pros and cons before taking out a 10-year fixed mortgage: Pros
Cons
A 10-year mortgage is perfect for homeowners who want to repay their mortgage fast and can afford to make high monthly payments. People with excellent credit scores can also benefit from 10-year mortgage rates. They qualify for larger payments due to their robust financial profile. In addition, these plans are great for homeowners who need to refinance mortgages and have been making payments toward an existing loan. For example, they could refinance their loan if they have eight to nine years left on their mortgage. Taking out a long-term mortgage wouldn’t make sense, but a 10-year mortgage might. Furthermore, first-time buyers may find a 10-year mortgage rate attractive. Many institutions offer affordable plans, which is usually the main priority when purchasing a property for the first time. If this applies to you, consider your income and determine if it can sustain large monthly payments. You may need to meet other financial requirements or savings, all of which can strain your budget. Longer-term mortgages might be more advantageous due to lower monthly payments. They leave more room for student loans, emergency funds, home repairs, and other expenses.
Mortgage rates vary drastically by lender. You can get a good rate if you have a great credit score as the loan requires you to make high payments. Lenders also consider your assets and regular income. Additionally, you need to have a low debt-to-income (DTI) ratio. Banks use this percentage to determine if you can easily afford mortgage payments while paying toward other debt. In other words, they want to ensure a mortgage wouldn’t stretch your finances too thin. When applying for 10-year mortgages, lenders usually provide loan estimates. The document outlines your initial quote including the rate and additional fees. This way, you can anticipate most of the costs throughout your term.
You can gain a lot from a 10-year mortgage. The most significant benefit is that you can pay off your loan faster than under longer terms. Also, the rates are typically lower than 15 or 30-year mortgages, and you make fewer payments. This helps you save more money on interest. That said, fixed-rate and ARM interest rates can change by the day. You need to stay on top of any adjustments and monitor the economic climate. If you expect interest rates to rise in the next decade, a 10-year fixed-rate mortgage may be your best choice. Conversely, if you anticipate the rates to drop, you might be better off with an ARM. Either way, consider your options carefully. The main factor to take into account is your credit rating. If you have a stable financial profile, you may qualify for better rates and higher monthly payments, allowing you to repay your loan faster. But if your credit rating is poor, try to raise it before taking out a mortgage. Finally, only work with well-established lenders. They generally offer transparent rates without hidden fees, so you know how much you need to return from day one.
How does a 10-year ARM work?
Should I refinance a 10-year mortgage?
What is better, ARM or fixed-rate?