Fixed or Adjustable Rate Mortgage?

fixed or adjustable rate mortgage nashville tn

Fixed or Adjustable-Rate Mortgage (ARM)? That is the question local Nashville area consumers are asking themselves these days. Mortgage rates are climbing and homebuyers are shopping for the cheapest rates possible.

The thought of getting a mortgage makes a lot of people cower in fear.  That’s because if you’ve never been through the process before, there is much that you probably do not know or understand.  One of the most common questions is whether one should get a fixed or adjustable-rate mortgage.

Fixed-Rate Mortgages

A fixed-rate mortgage is one that has an interest rate that remains constant for the life of the loan.  That means that your payment is the same each and every month.  This type of mortgage is easy to understand and makes budgeting more predictable. The downside to fixed-rate mortgages is that if interest rates are high when you get your mortgage, your interest will remain high as long as you keep the original loan.  If you wish to take advantage of lower interest rates in the future, you will have to refinance.  That means more paperwork and additional costs.

Adjustable-Rate Mortgages (ARM)

Adjustable-rate mortgages, or ARMs, feature rates that start out low, they are adjusted according to current interest rates after a specified amount of time.  The initial rate can be good for anywhere from a month to 10 years, after which it may be adjusted monthly, yearly, or at any other frequency specified in the mortgage agreement. The biggest advantage of adjustable-rate mortgages is the low initial interest rate.  This generally means that one can get a larger loan due to the lower payments. 

Advantage: Falling Interest Rates

ARMs also allow you to take advantage of falling interest rates without having to refinance. The bad thing about ARMs is their unpredictability.  Depending on the mortgage’s terms, the interest rate (and your payment) could nearly double in just a few years.  This would leave you with a much higher payment than you started out with, and possibly a higher payment than you would have had with a fixed-rate mortgage.

Which type of mortgage you should get depends largely on your situation.  How long you plan to keep the home and whether your income is likely to stay the same or increase over the coming years are two important things to consider.  If you only plan to keep the home for a few years, an adjustable-rate might work to your advantage.  And if you need low initial payments, an ARM may be the way to go.

If you’re looking for a payment that stays constant from month to month, a fixed-rate mortgage would be your best bet.  If you can get one when interest rates are low, it could save you money compared to an adjustable-rate in the long run.

I’m a big proponent of a Fixed Rate Mortgage and suggest that to all my clients. If you have any questions feel free to contact me for a list of local lenders.

About the Author

Born and Raised in Nashville, TN I've seen the Good and the Bad when it comes to the Nashville TN Real Estate Market. I've worked in this area for the past 15 years and helped it recover from the Housing Crisis of 2008 and Rise from the Flood of 2010. I have a Strong background in Digital Marketing and can help give your home the edge it needs in today's Digital Real Estate World. 

Buying a home presents many challenges that require a keen eye and knowledge of the area to avoid buying a Money Pit.  I can help you avoid those pitfalls and sleep well knowing your investment is secure. I work with several home builders and if finding that perfect piece of land is your goal. I can help you Build Your Dream Home 🏠.

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