If you are looking to purchase a home, the type of interest rate you choose is an important factor when considering what type of mortgage to get and will ultimately determine how much you will spend on your monthly payments. A common type of interest rate is the fixed rate mortgage, which has an interest rate that stays the same for the entire duration of the loan. If you are interested in buying a home with a fixed rate mortgage in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact our loan specialists at Foundation Mortgage. We can help you understand the process of a fixed rate mortgage, and determine if it is the best financing option for you.
What Is a Fixed Rate Mortgage?
There are two main types of mortgage rates; fixed rate, and adjustable rate, (ARM). A fixed rate mortgage has an interest rate that remains constant throughout the life of the loan, and in an adjustable rate mortgage, the interest rate fluctuates. A fixed rate mortgage is a popular choice amongst homebuyers because the payments are predictable, and it provides a sense of stability for the borrower because they know what to expect to pay every month. Fixed rate mortgages tend to have higher rates than adjustable rate mortgages, but the adjustable rate usually increases after its initial lower introductory period. Fixed rate mortgages come with many different term options, which can range anywhere from a 5 to a 30 year period. The longer the term is, the lower your monthly payment will be.
The Pros and Cons of a Fixed Rate Mortgage
There are several advantages of getting a fixed rate mortgage. Since the payment is the same each month, it makes it easier to budget, and is a safer option in the event of an unexpected life event such as a divorce or getting laid off. Since the payments are predictable, you know what payment to expect each month. With each mortgage payment, you are also paying off a portion of the principal each month, which increases your home equity, and you can also make additional payments to pay off your loan quicker. Also, depending on the terms, your payments could be lower over a longer period of time and allow you to qualify for a larger loan amount. It is important to note that there are a few disadvantages to fixed rate loans, including inflexibility. If interest rates drop, you will need to refinance to get a better rate. Additionally, within the first years of a fixed rate mortgage, the payments mainly go towards the interest, so it takes longer to pay off the principal balance of the loan.
Deciding On a Fixed Rate Mortgage
The type of mortgage you get ultimately depends on your unique financial situation. If you are interested in learning more about a fixed rate mortgage in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today for a consultation. We can help determine your qualifications, and help you understand the best mortgage option available to you.