Thursday, February 04, 2016

Is a 10 Year Mortgage Loan a Good Option

10-Year Mortgage Loan
Why homebuyers shy away from the 10-year fixed loan?
  • Most homebuyers don’t feel they can afford the mortgage payment for a 10-year loan. Since the recession and government shutdown homebuyers know that the future is unknown so they want to be sure they can afford their mortgage payment and avoid foreclosure.  It is easier to afford a mortgage payment with a 30-year loan. However, if are a homeowner and are considering moving to a new home you should consider a 15-year or 10-year loan to pay your home off faster versus refinancing for another 30-year mortgage.
  • The mortgage industry pushes 30-year mortgage loans because they are more profitable.  Ten-year mortgages are not pushed to homebuyers because they are less profitable, you actually have to ask a lender about it. They don’t mention it as an option when talking to potential homebuyers.

Why 10-year loan interest rates are lower?
  • 10-year loan interest rates are lower because they are safer loans for lenders. Homeowners pay off their mortgage loans in 1/3 the time than everyone else which means the lenders get their money back faster.  A ten-year loan is usually 75% - 80% the interest rate of a 30-year loan. Homeowners who get a 10-year loan are usually more financially stable those homeowners who get a 30-year loan.
  • According to a 30-year mortgage loan interest rate is 3.69%. A 10-year rate is 3.12% with a monthly payment of 40-60% less than a 30-year loan depending on the interest rate.  

How much do you save by getting a 10-year?
  • The savings for a 10-year loan can be great. A 30-year loan for $200K at 3.69% would pay $130,996.65 in interest over the life of the loan.  A 10-year loan for $200K at 3.12% would pay $ 33,077.57 in interest over the life of the loan.

What are the advantages of having home equity build faster?
  • You increase your net worth at a faster rate
  • Can use the equity to make up for losses in your retirement account, home repairs, purchase investment property or start a business
  • Helps underwater homeowners rebuild equity nearly twice as fast than with a 30-year loan
  • Puts homeowner in a better position to sell

 Whom is a 10-year loan beneficial?
  • Equity is extra beneficial for those near retirement or who are retired and took out a mortgage loan later in life
  • A 10-year loan is a good option for prospective retirees and consumers having major life changes such as paying for college education or starting a business
  • It frees up money that was used to pay the monthly mortgage payment
  • It boosts your credit score because you owe less debt.
  • It make you look more favorable if you desire to apply for credit in the future
  • If you experience a financial crisis you can borrow equity from your home

What advantages does a homeowner qualify for regarding mortgage insurance?
  • If your house has more than 20% equity, you will not need to pay PMI, unless you have a FHA mortgage loan or are considered a high-risk borrower
  • If the appraisal shows you have 10% equity, you could qualify for the lender to pay the monthly mortgage insurance payments (Lender Paid Mortgage Insurance)
  • A refinance that involves removing private mortgage insurance (PMI) will to help save you money
  • PMI can be range from .75% of the loan amount to 1.3% of the loan amount, annually, paid on a monthly basis. On a loan for $400,000 that could be as high as $430 per month – for 10 years that equals to $51,600, for 30 years that equals to $154,800.
  • You save on PMI because you only have to pay it for 10 years versus the traditional 30 years

Why should a homeowner apply for a 10-year refinance loan?
  • If you want to lower your monthly payment and shorten the length of your loan
  • If the refinance rate will decrease your current interest rate by at least a point and a half
  • If you are paying PMI and have at least 20% equity in your home
  • If you don’t have a mortgage prepayment penalty
  • If you have an ARM or balloon loan
  • If you are trying to add or remove someone from a mortgage due to a marriage or divorce
  • If you have a second mortgage or home equity loan
  • To get out of debt sooner
  • If you don’t plan to move anytime soon

When should a homeowner apply for a 10-year refinance loan?
  • You have good credit – at least a 720 credit score
  • You have at least 20% equity in your home
  • You can get approved for an interest rate at least 1 ½ points lower than your current interest rate
  • You will not be living paycheck to paycheck or struggling to pay the higher mortgage payment
  • You are married and your spouse is helping to pay the mortgage payment
  • You received a windfall or will receive a windfall in the near future
  • You can afford the increased monthly payment for the next 10 years

When shouldn’t a homeowner apply for a 10-year refinance loan?
  • If you are living paycheck to paycheck
  • If you are not in good health
  • If you have bad credit
  • If you work in an unstable industry
  • If you live in a high cost area (NY, California, Washington DC, etc.)
  • If you want to take advantage of lower interest rates in the future

1 comment:

Daisy Fenchui said...

Great post, very informative. I think 10 Year Mortgage Loan is a good option for those who are financially strong or if you can pay higher monthly payments.

But also this option has few plus points -

1. Low rates. Not only is the term shorter, but 10-year mortgage interest rates also are typically lower - by as much as 1 percent than 15 or 30-year mortgages.
2. Build equity fast. You will pay off the debt and build equity faster than you would with a longer-term mortgage (just 120 months versus 360 months for a 30-year loan).
3. Pay less interest. A 10-year mortgage can save you an eye-popping amount of money over a 30-year loan. Ten years of interest on a $250,000 loan at 4 percent is a little more than $53,000 that's 73 percent less in interest expense than the roughly $233,000 you would pay for 5 percent over 30 years.

But if you have bad credit score and financially not strong then avoid 10 Year Mortgage Loan Option. For this firstly check credit score..