Many Move From 30-Year to 10-Year Mortgages

by on Mortgage

The Words Interest Rates on a Road and Percent Sign

Before the real estate market crash and even over the last few years, most people choose to opt for 30-year fixed-rate mortgages due to the lower interest rates and smaller monthly payments. As expected, many people have decided to take advantage of the still-low interest rates when purchasing a new home. Although a vast majority of people still falls back on 30-year fixed-rate mortgages, many people are now moving toward 10-year loans.

Choosing Between 30-Year or 10-Year Home Loans

The great thing about a 30-year fixed-rate mortgage is the low monthly payments as well as the lower interest rates. In fact, even with mortgage rates rising, interest on home loans is still much less than it was before the real estate market crash and is therefore still an incentive for homebuyers and investors.

Many people think that the record low mortgage rates are a thing of the past, predicting that these rates will continue to rise throughout the future as the real estate market and national economy gains momentum.

Even though 30-year mortgages are still the norm, homeowners who can afford the higher monthly payments of a short duration home loan are finding that opting for a 15 or 10-year loan can save them a significant amount of money, especially with low mortgage rates.

Hypothetically, let us assume you are purchasing a $300,000 home with a 20% down payment ($60,000). Also, let us assume that you can choose between a 30-year fixed-rate mortgage with 4.4% interest or a 10-year fixed-rate mortgage with an interest rate of 3.4%.

For a $240,000 loan for 30 years at 4.4% your mortgage payment would be $1,201.83 and you will pay $192,657 in interest throughout the duration of the loan.

For a $240,000 loan for 10 years at 3.4% your mortgage payment would be $2,362.03 and you will pay $43,444 in interest throughout the duration of the loan.

Therefore, if you can afford the higher monthly payment you can save $149,213 in interest alone in this example. Clearly, this is the best option for anyone who has enough monthly income to pay the higher mortgage payments.

The video below has more information about whether you should opt for a shorter–term mortgage.

It is recommended that you use a mortgage calculator to help you determine exactly how much you can save by choosing lower interest rates, loan terms, a higher down payment, and a variety of other options.

In conclusion, if you are able to take advantage of the still relatively low interest rates and can afford to pay a higher monthly mortgage payment, then you can save a lot of money by opting for a 10-year fixed-rate mortgage over a 30-year home loan.