The prospect of purchasing a home comes with many major decisions and factors to take into consideration. Perhaps one of the most significant choices you will have to make when buying a home is deciding what type of financing option you will have and what type of interest rate option will work the best for your situation. One popular interest rate option is an adjustable rate mortgage, in which the interest rate changes throughout the life of the loan, and can often be beneficial for a borrower in the long run. If you are buying a home in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and are trying to decide your optimal interest rate and mortgage type, contact Foundation Mortgage. Our loan specialists will help you find the best mortgage option for your situation.
Adjustable Rate Mortgage – The Basics
In an adjustable rate mortgage, (sometimes referred to as an ARM), the applied interest rate to the outstanding loan balance varies throughout the duration of the loan, essentially meaning that the interest rate can either increase or decrease. The initial interest rate in an adjustable rate mortgage is fixed for a period of time, and typically, that initial interest rate on an adjustable rate mortgage is lower than a fixed rate mortgage. After a period of time, the ARM fixed interest rate ends, and the interest rate fluctuates up or down depending on certain economic benchmarks. There can be instances when an adjustable rate mortgage interest rate increases, resulting in a borrower paying a higher interest rate than with a fixed rate mortgage, however, adjustable rate mortgages have limits that help to protect a borrower from extreme interest rate increase costs.
The Pros of an Adjustable Rate Mortgage
Adjustable rate mortgages can be very beneficial to borrowers. An adjustable rate mortgage could be a very beneficial option for borrowers who are looking to relocate after a few years and are able to take advantage of the low initial interest rate to pay off the loan before the interest rate increases. Another major advantage is that early on in the loan, you will have a lower monthly payment and interest rate, which can allow the borrower to invest and save more money during that time. An ARM may also allow borrowers to take advantage of decreasing interest rates without needing to refinance their loan and pay the associated closing costs and other refinancing fees.
Find Out If an Adjustable Rate Mortgage Is Right For You
In many circumstances, adjustable mortgage rates can come with many benefits for a borrower. Foundation Mortgage can work closely with you to determine your best loan option if you are interested in learning more about adjustable rate mortgages in the areas of Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee. Contact us today to take the steps of purchasing your new home.
