When buying a home, there are several factors to consider when deciding on a financing option. The interest rate you will have to pay on your mortgage is a very important factor when choosing a loan, and the interest rate type you choose could end up saving you a great deal of money in the long run. With an adjustable rate mortgage, the interest rate of the loan adjusts over time, depending on the housing market circumstances, and can be a profitable option for certain homebuyers. If you are looking for a home in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage. Our loan professionals can help you determine what type of interest rate will be the most beneficial for you when financing your home.
How An Adjustable Rate Mortgage Works
With an adjustable rate mortgage, (ARM), the interest rate can change periodically, (by either going up or down), throughout the duration of the loan, depending on your loan terms and the benchmark interest rate index your lender chooses. An adjustable rate typically has a lower fixed interest rate at the beginning of the loan that can last around three to ten years. This is then followed by the adjusted fluctuating interest rate. At the end of the fixed rate period, the interest rate changes based on an index that is connected to the housing market, which determines if the rate goes up or down. If the economy happens to have a bad year, ARM interests could increase significantly, meaning you would subsequently pay a higher rate. Fortunately, most adjustable rate mortgages do have a cap that will protect borrowers from paying exorbitant fees.
The Benefits of an Adjustable Rate Mortgage
There are several benefits to securing an adjustable rate mortgage. First of all, adjustable rate mortgages carry a lower interest rate at the beginning of the loan, and are usually even lower than fixed rate mortgages. Therefore, you are guaranteed lower payments over the first few years of your loan, making it a beneficial option for a borrower who plans on moving before the introductory fixed rate period ends, or for a borrower who can pay off the loan before the fixed rate period ends. Another benefit of an ARM is that there are caps in place after the fixed rate period ends, ensuring that there are payment limits if the interest rate happens to increase significantly. Additionally, in the event that market interest rates decrease, your monthly payment could drop.
Professional Assistance With Adjustable Rate Mortgage
In certain circumstances, an adjustable rate mortgage could potentially save a borrower a great deal of money. If you are deciding on what type of financing option to choose when buying a home in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today. We can help you determine the most suitable loan option for you.