If you’re like most people buying a home for sale in Knoxville, you know you’ll need a mortgage loan to make the purchase – and you probably also know that you have a lot of options when it comes to financing. You should absolutely talk to a financial professional before you take out a mortgage loan, but in the meantime, here’s some information on adjustable-rate mortgages and fixed-rate mortgages.
How to Decide Between an Adjustable-Rate and Fixed-Rate Mortgage
When you have to decide between an adjustable-rate mortgage, or ARM, and a fixed-rate mortgage, you may not know which one is best for you. And every situation is unique, so the best thing you can do is talk to a financial professional about your financial circumstances, your goals and the cost of the home you wish to buy.
In order to make the right decision, you need to understand the basic premise of each type of loan.
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Adjustable-Rate Mortgages
Adjustable-rate mortgages give you a low interest for a certain amount of time (usually 3, 5, 7 or 10 years). After that, your interest rate is subject to change at regular intervals based on the going rate for new mortgages at that time. That means your payment could go up (or down, in some cases). The amount you pay for your monthly mortgage payment today will be different from what it’ll be 15 years from now.
Fixed-Rate Mortgages
Fixed-rate mortgages have the same interest rate over the life of the loan. The interest rate never changes, so your payment amount never changes (unless your property taxes or homeowners insurance payments are tied into your mortgage payments, because those can, and do, change from time to time).
Related: Self-employed and buying a home? Here’s what to know this year.
How to Decide Between ARMs and Fixed-Rates
Your personal circumstances will dictate whether an ARM or fixed-rate mortgage is right for you. Start asking yourself these questions:
- How much can you afford today?
- Would you still be able to afford an adjustable-rate mortgage if the interest rates were to rise?
- How long do you intend to keep the home?
- Are interest rates going up or down, and does it look like the current trend will continue?
Run all the numbers using the worst-case scenario, and talk to your lender about the options you have in each area. You should also talk to your lender about how high interest rates could possibly go (as well as how high your payments might go) before you make a decision between an ARM and a fixed-rate mortgage.
Are You Buying a Home in Knoxville?
If you’re ready to buy a home in Knoxville, I’ll help you find one that’s perfect for your needs. Call me at 865-368-5150 now and let’s talk.
While you’re here, use this Knoxville home search – you can see listings instantly! You can also look at:
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