Back to Home Loans

Adjustable-Rate Mortgages in Tennessee

If you have your heart set on a home in the Volunteer State and need financing, Dash Home Loans can find the most appropriate lending option for you. For some borrowers, this is an adjustable-rate mortgage – or “ARM” for short.   

Compared to fixed-rate mortgages, which charge a set interest rate, ARMs have variable interest rates. Though unpredictable, this financing tool can have serious advantages for borrowers who want to purchase a fixer-upper or starter home. 

Want to learn more? Keep reading for the nitty-gritty on getting approved for an ARM in Tennessee

Apply for an adjustable-rate mortgage


What Is an Adjustable-Rate Mortgage?

If you’re new to the real estate world, here’s a quick crash course: Interest is the cost of borrowing money. It’s expressed as an annual percentage rate (APR) and is influenced by market conditions and other factors like your creditworthiness, debt-to-income ratio, and home price. 

With a fixed-rate mortgage, you can expect to pay the same interest rate for the lifetime of the loan – whether that’s 10 years or 30. 

But with an ARM, your interest rate will change. In the beginning, you’ll enjoy a below-average “teaser” rate. After this initial period ends, your APR will adjust on a predetermined basis. This may be monthly or annually, depending on your loan terms.   

Understanding Tennessee Adjustable-Rate Mortgages

Since the interest rate on ARMs fluctuate based on market conditions, they’re also referred to as “floating mortgages” or “variable-rate mortgages.” This lingo is good to know before you call a lender. 

Below, you’ll find more terms that will help you understand the nitty-gritty of ARMs.

  • Index: An index is a benchmark interest rate that varies based on general market conditions.
  • Margin: The ARM margin is the number of percentage points added to the index after the initial rate period ends. Your loan agreement will document the agreed-upon margin. 
  • Initial and Periodic Caps: The initial adjustment cap dictates how much your interest rate can change the first time it adjusts. Comparatively, periodic caps determine how much the interest rate can rise or fall during an adjustment interval. Both initial and periodic caps protect the borrower (i.e. you) from super-high APRs. 
  • Lifetime Cap: The lifetime cap is the maximum interest rate a borrower can expect to ever pay.

ARMs are expressed using two numbers. The first number denotes the length of your initial fixed-rate period. And the second number? That’s how often the rate will adjust after the fixed-rate period. 

So, with a 2/5 ARM, you could expect a fixed rate for two years followed by a floating rate for the next five. 

It’s also common for ARMs to have a cap structure that’s written using numbers. 

For example, a homeowner may have a 2/5 ARM with a cap structure of 2/2/5. This means that the APR can increase by a maximum of 2% (the first “2”) after the fixed-rate period. From there on out, the rate can increase by a maximum of 2% (the second “2”) but never by more than 5% (the last number). Pretty cool, right? 

Adjustable-Rate Mortgage Requirements for TN Borrowers  

If you want lower rates to start, a floating mortgage could be perfect for you. But before you get too attached, make sure you’re eligible for an ARM in Tennessee. 

Though requirements vary from lender to lender, most look for:   

  • A credit score of 620 or higher. But borrowers with credit scores as low as 500 may still qualify for an ARM. 
  • A down payment of at least 5%. Depending on your lender, you may be able to put less down. Just keep in mind that if your down payment is less than 20%, you’ll have to pay private mortgage insurance (PMI). 
  • A debt-to-income ratio under 45%. To determine your debt-to-income ratio, add up your monthly debt payments and divide them by your gross monthly income.

If you have any questions about these requirements, Dash Home Loans provides five-star customer service and unparalleled home financing assistance. 

Contact us today and we’ll put you in touch with a Mortgage Coach who can walk you through the prequalification1 process.  

Pros & Cons of Adjustable-Rate Mortgages

The inherent benefit of an ARM is obvious: These mortgages help borrowers save money, at least at first. Since homeowners benefit from a lower teaser rate, they won’t be paying loads of interest during the fixed-rate period. This is perfect for someone who plans on selling before their APR adjusts. 

However, these mortgages can be risky. Even with caps, your interest rate can still skyrocket. In return, your monthly mortgage payment will follow suit. 

If you don’t have the wiggle room in your budget to accommodate these increases, you risk defaulting on your home. Because of this unpredictability, many homeowners opt for a traditional, 30-year fixed mortgage.  

Apply now

ARM vs Fixed-Rate Mortgage: Which Is Right for You?

It can be difficult to decide between a variable- or fixed-rate mortgage. Luckily, when you connect with a Mortgage Coach at Dash, they can help you weigh the advantages of each loan type. For instance, they’ll likely ask you:

  • How long do you plan on staying in the home? If this is a starter home, an ARM could be a great choice. You’ll begin with a low monthly mortgage payment, which will help you save up for your next property. 
  • What’s the interest environment like? If rates are fairly low right now, it may make more sense to lock in that low rate with a fixed-rate mortgage. But if rates are high, an ARM is probably the better choice.    
  • Could you afford your mortgage if interest rates rise? ARMs can be unpredictable. Depending on your loan term, the APR2 may adjust annually – or even monthly. Before signing on the dotted line, make sure your budget can tolerate this unpredictability. 

Do you still have questions about ARMs in Tennessee? Contact Dash Home Loans online today!

A friendly Dash expert
Not sure if you qualify? Contact us today to talk with one of our friendly Mortgage Coaches.

Work With Dash To Secure an ARM Loan in TN

Let’s face it: The home financing process is normally unbearable. That’s because most mortgage lenders in Tennessee drown borrowers in mountains of paperwork, expecting you to decipher legalese alone. And when you have questions – trust us, you will – they never return your phone calls. 

At Dash Home Loans, we do mortgage financing differently. We’ve simplified the lending process by firing the middleman (i.e. inefficient loan processors) and ditching unnecessary paperwork. The result? You’ll get approved for an ARM loan in Tennessee in a flash.  

Work with a trained Mortgage Coach like Crystal
A homeowner researches their next loan
Helping Homeowners in the Carolinas

Apply for an Adjustable-Rate Mortgage With Dash

If you’d like to discuss your options further or have any questions about our service, contact us to speak with one of our friendly team members.

Ready to get started? Great! Click “Apply now” below to begin your application.

Apply now
Frequently Asked Questions

Tennessee Adjustable-Rate Mortgage FAQs

If you have questions about securing an adjustable-rate mortgage in Tennessee, our team is here to help you. Our Mortgage Coaches are happy to answer all of your questions and provide specific info to you. Here are some common questions about ARMs:

Are ARM interest rates lower?

A fixed-rate mortgage is a home loan with a consistent, unchanging interest rate. No matter what, you can expect the same APR during the lifetime of your loan.

Is an adjustable-rate mortgage a bad idea?

Not necessarily fixed-rate mortgage is a home loan with a consistent, unchanging interest rate. No matter what, you can expect the same APR during the lifetime of your loan.
ly. An adjustable-rate mortgage is great for a first-time homebuyer who expects to sell their home in the near future. These mortgages are also ideal for a borrower who expects a salary increase.

What is a fixed-rate mortgage?

Possibly. Depending on market conditions, your ARM may go down. But more often than not, interest rates increase after each adjustment period.

Can the interest rate on my ARM decrease?

Possibly. Depending on market conditions, your ARM may go down. But more often than not, interest rates increase after each adjustment period.