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.
Today’s 10-Year Mortgage Rates
Here’s an overview of current 10-year mortgage rates*:
*This data represents average national mortgage rates as of 26/02/24.
10-Year vs. 15-Year vs. 30-Year Fixed Rate
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:
*This data represents average national mortgage rates as of 26/02/24.
Pros and Cons of 10-Year Fixed Mortgages
Consider the following pros and cons before taking out a 10-year fixed mortgage:
- No additional fees – Changing interest rates can increase your mortgage fees. This doesn’t happen if you opt for a 10-year fixed plan. You can save a lot of money otherwise spent processing your request and taking out loans at higher rates.
- Peace of mind in unpredictable markets – If you’re worried about interest rate rises, take out a 10-year fixed mortgage to steady your current rate, even if prices soar due to various economic factors. This gives you peace of mind in unpredictable markets.
- One-time credit check – The more often you apply for mortgage deals, the more you’ll be subject to credit checks. This can lower your credit score and your risk negatively affecting eligibility for future loans.
- Fluctuating property prices aren’t a factor – You can generally get better mortgages if your house has a low loan-to-value (LTV) ratio (the percentage of your property lent as a mortgage). A 10-year plan lets you do so because it’s relatively long-term. It doesn’t put you at risk of not being able to access better rates if your LTV rises. Rather, it safeguards you against short-term market dips. The only exception is if property prices increase steadily.
- Protection in case of changes to lending criteria – Mortgage providers can tighten affordability criteria, keeping you from remortgaging at competitive rates. The easiest way to prevent this is to take out a 10-year fixed-rate mortgage. It’s a longer deal that serves as a buffer against changes to lending criteria.
- Higher initial payments – Interest rates on 10-year fixed mortgages are usually higher than with shorter-term deals, resulting in higher monthly installments.
- Potential penalties – If you plan to relocate in the next couple of years, you might need to repay your mortgage early to opt out of the deal. While this lets you choose your new property, it also leads to repayment charges, which can amount to nearly 10% of the remaining amount. Some banks allow you to hold onto your mortgage when moving, but they might also perform stringent affordability and approval checks.
- Risk of paying more interest – Interest rates may fall or stay the same over the next decade. In this case, taking out multiple shorter-term mortgages could be more affordable.
- Risk of overpaying with high-LTV mortgages – Suppose your LTV is around 65% at the start of your term. A 10-year fixed agreement locks your rates and any associated values, including the LTV. Consequently, if you repay a part of your mortgage and bring down your LTV, you won’t qualify for better rates because your plan is fixed. You’ll need to pay the higher rate until the end of your term.
Who Should Consider a 10-Year Mortgage?
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.
What Impacts Your 10-Year Mortgage Rate?
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.
Work With a Reliable Lender and Consider Your Options Carefully
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.