Understanding a 7 Year Adjustable Rate Mortgage

Pile of coins represent potential savings with a 7 year ARM loan.

Want to see if you can save some serious coin with a 7 year adjustable rate loan?

With 7 year ARM loans, there ┬áis an introductory rate which will be in place for the first 84 months of the mortgages. After that introductory period comes to an end, the rate will then adjust up or down based upon the mortgage’s caps, margin, and corresponding index. Be sure to review the parameters of any adjustable rate mortgage with your loan professional to ensure that you have a solid grasp on the products before moving forward.

Highlights of 7 Year ARM Loans

  • Initial rate is set for the first 7 years of the loan (84 months). After those 7 years pass, the note rate will begin to adjust up or down. The loan’s adjustments correspond to a specific financial index which the loan is tied to. These loans typically have caps which prevent the rate from shooting through the roof or dropping through the floor.
  • At certain times, 7 Year ARM rates can be appealing when fixed rate mortgages are higher. When 30 year fixed rate pricing is extremely low, as it has been in recent memory, there may not be enough savings upside for the borrower to take on the risk of potential future rate hikes with an ARM.
  • Caps, Margins, and Indexes will vary by product and investor.

Example of Who Might Want to Consider a 7 Yr Adjustable Rate Loan?

  • A borrower who is planning on being in their home for 5-7 years.
  • Someone who is not risk adverse and feels confident that they would be able to stomach future payment increases in the event he or she were unable to refinance or get out of their current housing situation (i.e. losing a job, depreciating property values and being upside down in their mortgage).
  • A person who sees the value in the monthly savings during the introductory rate period (i.e. a young home buyer who is just starting out, a growing family or one planning on upcoming tuition payments).

As with any major financial decision, you’ll to speak with a licensed mortgage professional (or two) in your area.