Compare 5-year mortgages

With sky-high monthly payments, this loan is best for high-income earners and investors.

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A five-year mortgage is the shortest loan on offer. The interest rates are incredibly low, but you’ll pay thousands of dollars more each month. If you can afford the payments, it’s an attractive option.

How does a 5-year mortgage rate compare to 15- and 30-year mortgages?

A five-year mortgage is paid off in only five years — significantly quicker than a traditional 30-year mortgage. This term is unpopular among homebuyers because of the high monthly payments, making it rare for lenders to offer it.

But if you can comfortably afford the expensive repayments, it’s worth looking into a five-year mortgage.

The best thing about a five-year mortgage is the low-interest rates, which are locked in for the life of the loan. Lenders are in the industry of risk calculation. In their minds, a borrower is less likely to default on a five-year loan than a 20- or 30-year loan. That’s because borrowers need to meet strict eligibility requirements and be in an excellent financial situation to score a five-year mortgage in the first place.

The rate you’ll pay is hinged on a range of factors, such as your credit score, income, down payment, and the purchase price of the home. Since five-year mortgages are so rare, lenders don’t advertise their rates — but you can expect to earn an interest rate that’s between 1 and 1.5 points lower than that of a longer loan — 15, 20 or 30 years. When you do the math, this means that you’ll save thousands in interest over the life of the loan.

When people talk about a 5-year mortgage, they’re often referring to a 5/1 ARM.

This is actually a 30-year mortgage with a fixed rate for the first five years. After that, the interest rate can change once each year for the rest of the loan period. As a result, you lose the predictability that comes with steady monthly payments — yours may change to match market conditions.

Unlike five-year fixed-rate mortgages, many lenders offer 5/1 ARMs.

Compare mortgage lenders and rates

Name Product Min. credit score State availability Loans offered
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Streamline your mortgage from quote to final payment — all from your computer or phone.
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A national lender that offers the full selection of mortgage products.

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What are the benefits of a 5-year mortgage?

A 5-year mortgage offers a few useful benefits for homeowners, including:

  • Low interest rates. The shorter the loan term, the lower the interest rate. For 5-year FRMs, you’ll most likely score a rate that’s 1 to 1.5% lower than that of a 15- or 30-year loan.
  • Significant interest savings. On that note, you’ll save thousands — or even hundreds of thousands — of dollars in interest over the life of the loan.
  • Predictable payments. With a 5-year FRM, you’ll pay the same amount each month for the life of the loan. This makes it easier to budget, and eliminates the risk of an increase of payments if interest rates rise.
  • Build home equity faster. Since the loan is so short, you’ll pay down the principal balance, increase (and unlock) your equity and be debt-free much quicker than most borrowers.
  • Ideal for refinancing. 5-year refinances are most accessible. Many borrowers refinance to a shorter term when their nearing the end of their old loan to take advantage of lower interest rates.

What should I watch out for?

Taking out a 5-year mortgage does have potential pitfalls to be aware of:

  • High monthly payments. The loan is condensed, so you can expect to pay hundreds or thousands more per month than you would for a 15-, 20- or 30-year mortgage.
  • Tough eligibility requirements. To ensure you can make the monthly payments, you’ll need to prove you have sufficient income, an excellent credit score, and a positive credit history.
  • Hard to find. 5-year FRMs are rare, and lenders who offer them often don’t publish their rates online. If you’re interested, you’ll need to shop around.
  • Fewer tax perks. Paying less interest is great for your bank account, but it does mean a lower mortgage interest deduction.
  • Bigger financial responsibility. You may have less money to cover unexpected expenses or participate in investment opportunities.

Is a 5-year mortgage right for me?

Before debating the pros and cons, you need to figure out if you can get a five-year mortgage. Since the monthly payments are often thousands of dollars more per month, lenders (understandably) have sky-high standards. The eligibility requirements vary between lenders, but you’ll most likely need an excellent credit score, a low debt-to-income ratio, a larger down payment, and proof of cash reserves.

Thanks to these requirements, five-year mortgages are usually only accessible for high-income borrowers who can afford the hefty payments. If that sounds like you, it’s a good idea to set aside some funds. Think of these funds as insurance — just in case your financial situation changes, or you need extra cash during those five years.

These mortgages also suit those who want to focus on paying off their home over channeling their money into other investments.

Even if you can afford the high monthly payment, you may still want to consider a longer loan. For example, if you have an aggressive approach to investing, you might want to free up more money so you can get in on other opportunities — and potential profits.

Bottom line

The five-year mortgage is all about extremes: low interest rates and extremely high monthly payments. This term is the shortest on offer. It’s hard to qualify for, so it’s usually reserved for high-income borrowers who can easily meet lender requirements.

If you’d prefer a more flexible loan, explore your options with our guide to mortgages.

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