In 2007, the Federal Housing Finance Agency (FHFA) announced that the national median effective interest rate for a conventional single-family mortgage stood at 6.49 percent. But on the other hand, the national new homes sales data over the same time period had started a sharp, monumental decline. The global economic and financial crisis of 2007 had begun in earnest, taking the entire residential real estate market down with the U.S. economy into a deep recession.
During the height of the global financial crisis from July 2007 to July 2008, the United States Census Bureau and the Department of Housing and Urban Development documented a 35 percent collapse in the seasonally adjusted annual rate of new home sales across the country. In the U.S. alone from 2007-2009, millions of homeowners saw their homes fall into foreclosure, coupled with a precipitous drop in the value of their properties as well.
A Real Estate Recovery in 2010
At the time of the writing of this review, the national residential real estate market for single-family homes (similar to the U.S. economy) has begun to show signs of a tepid, if not sluggish recovery. However, this rebound in the U.S. economy has been weaker than the federal government originally anticipated in early 2010. But overall, the most recent statistics on new home sales and mortgage interest rates across the U.S. are encouraging and give good reason for home buyers to begin to think optimistically once again for the first time in several years.
So as a result, the major U.S. mortgage lenders and brokers are reporting a renewed surge of demand among consumers in search of the absolute best possible mortgage rate available on the residential real estate market. This search among home buyers is no more apparent than it is in the market for conventional 10-year mortgages, which may sound odd to many readers of this review.
Usually, U.S. consumers read in the media of the latest mortgage interest rates as they relate to the latest monthly statistics for 15-year and 30-year mortgages. But there are several other attractive mortgage loan financing options other than these typical mortgage interest rates, particularly a 10-year mortgage.
So with that in mind, we have compiled a detailed review of what you can expect to encounter when searching for your own 10-year mortgage contract in the coming year. Also, at the end of this article, we have included a section dedicated to prospective home buyers interested in taking advantage of the current interest rates offered with a 10-year mortgage:
Fixed-Rate and Adjustable-Rate Mortgages
For starters, there are two basic mortgages available to residential home buyers. Whether or not a fixed-rate mortgage is the best choice for you depends on a number of different factors such as credit history, income, and employment. But that is not to say that a fixed-rate mortgage is any better or worse than an adjustable-rate loan. Here are the basic definitions of each type of mortgage:
- Fixed-rate mortgages: these mortgages offer home owners steady, predictable monthly payments until the principle of the mortgage loan is paid down completely with interest. Fixed-rate mortgages provide consistent monthly and annual financial security for home buyers who must maintain a strict budget for instance.
- Adjustable-rate mortgages: you may recognize this type of mortgage because they have been in the news for the last few years. An adjustable-rate mortgage varies monthly and annually based upon the current health of the residential real estate market as a whole. So, the interest rate on an adjustable-rate mortgage may jump or plummet accordingly.
Comparing Fixed-Rate and Adjustable-Rate Mortgages in the U.S.
Even though fixed-rate mortgages provide mortgage holders with steady monthly payments, there still is an inherent amount of risk involved with these mortgages. Specifically, fixed-rate mortgages are considered by experts as “locked in”, according to information provided by the National Association of Realtors.
In the real world, this fact means that homeowners who possess fixed-rate mortgages cannot take advantage of lower interest rates in the coming years. You “lock in” at the interest rate you agree upon when closing your real estate purchase. Although, if interest rates should rise (which was a major part of the problem during the global financial crisis of 2007), fixed-rate mortgages are shielded from this instability in the real estate market.
The benefit of an adjustable-rate mortgage is the ability to take advantage of lower month-to-month interest rates. The downside to adjustable-rate mortgages is that if interest rates should spike, mortgage holders would be obligated to adjust their monthly payments to the latest interest rate as designated by their adjustable-rate contracts. For many homeowners, the risk of an adjustable-rate mortgage outweighs the reward of lowered monthly payments.
An adjustable interest rate is determined by a number of different factors, many of them outside the control of the mortgage holder. The current health of the real estate market (i.e. supply and demand), inflation, and the key interest rates offered by the U.S. Federal Reserve all contribute to the formula used to calculate adjustable interest rates.
As you can see, each type of mortgage has its own set of pros and cons to keep in mind. Neither mortgage is perfect or ideal in every situation. Each comes with some level of risk.
When is the Best Time of the Year to Look for a 10-Year Mortgage?
In short, there is no easy, simple answer to this legitimate question. As we mentioned above, the best interest rates depend on a number of unique, timely, and separate variables which are outside of a home buyer’s control.
But in fact, there are certain times of year when it is a good idea to purchase a home, especially if you happen to be a first-time homeowner. Winter traditionally has been a “slow season” for Realtors and brokers across the country. The precise reason for this quirky fact varies from expert-to-expert. Yet there is a general consensus that slower homes sales translate to better interest rates for home buyers.
Also, in the wake of the economic recession in the U.S., the federal government launched several different initiatives which were aimed at supporting an ailing residential real estate market. The most recent example of these actions was the much-publicized Home Buyer Tax Credit of 2010.
Under this federally sponsored program, first time home buyers were incentivized to enter the real estate market in an effort to stimulate demand in the struggling U.S. economy. For those who qualified and met all of the specified deadlines, the savings were substantial. Qualified home buyers earned a tax break of $8,000.
What are the Hidden Costs in 10-Year Mortgages?
The biggest positive to a 10-year mortgage is the money you will save compared to a traditional 15-year or 30-year mortgage. But it is a fair question to ask about the “hidden” costs you can expect to encounter. Some of the likely fees may include the following:
- any closing costs stipulated in your mortgage contract (a.k.a. ‘balloon payments’)
- legal and real-estate attorney fees
- federal/state tax and title fees
- state agency inspection fees
- pre-payment fees assessed for installments paid above the agreed monthly installments specified in your mortgage contract
It is possible you may incur other costs along the way. But the good news is that federal law prohibits mortgage lenders in the U.S. from effectively defrauding mortgage holders. Mortgage lenders must completely disclose the terms of their loans.
The Truth In Lending Act of 1968 established the consumer protection statutes which govern credit contracts between mortgage lenders and home buyers. So, by law mortgage lenders are required to disclose the total annual percentage rate (APR) on all mortgage contracts. In essence, this figure shows home buyers the total amount of interest which they can reasonably expect to owe each year until the mortgage loan is paid down in full.
The best way to avoid these so-called hidden fees is to thoroughly and completely review the entirety of your mortgage contract, which can be a daunting, yet necessary task for a first-time home buyer. But the law is on your side at the end of the day since mortgage lenders and brokers must disclose all stipulations in a typical mortgage contract.
10-Year Mortgage Rates Today
You might consider a 10-year mortgage unconventional since these loans include much larger month-to-month installments than the usual 15-year or 30-year mortgage. But if you can reasonably afford the payments, a sound 10-year mortgage might be your best option, saving you thousands of dollars in interest payments.
These savings on interest costs are possible due to the shorter term of the loan, as well as a tougher approval process which requires an excellent credit history above all. In fact, shortening the term of a mortgage is quickly becoming an increasingly popular option for prospective home buyers in search of the best mortgage rate possible. The key point to remember is the larger monthly payments exclude most home buyers.
At the writing of this review, the interest rates and APR on a fixed-rate 10-year mortgage stand at approximately 3.7 percent to 4.4 percent on average. Compare those rates to those of a fixed-rate 30-year mortgage, which today carries an average interest rate of 3.8 percent to 5.1 percent in some instances.
Home buyers can also take advantage of 10-year adjustable-rate mortgages as well. Although, 10-year adjustable mortgages carry higher interest rates than fixed-rate 10-year mortgages across the country. Not every prospective home buyer will qualify for fixed-rate mortgages, which is when adjustable-rate mortgages come into play the majority of the time.
Currently, the average interest rate on a 10-year adjustable-rate mortgage stands at approximately 4 percent nationally. The higher interest rate ought not to discourage you from an adjustable-rate mortgage however. An adjustable-rate mortgage typically includes a lower, affordable monthly payment, which can be a blessing, or a hindrance depending on your unique financial situation.
As always, it is best to consult with a trusted, reputable mortgage professional in your area since mortgage interest rates for both types of loan vary from state to state. But if you can afford the higher payments and meet all of the strict lender’s requirements, a 10-year mortgage can be a solid money saving strategy.