Mortgages 7/1 ARM
7/1 ARM mortgage rates
When it comes to choosing a mortgage plan, research on various home loan programs is a fundamental thing to do. Although traditional fixed-rate mortgages seem like a natural thing to choose, home loan experts advise not to ignore adjustable-rate mortgages as they may cost you cheaper. The most common type of adjustable-rate mortgage is a hybrid ARM, such as 5/1, 3/1 or 7/1 ARM. Here we will look at the basics of 7/1 ARM and why this home loan type may be an attractive choice.
Like any other hybrid ARM, 7/1 adjustable-rate mortgage has an initial interest rate that remains in effect for a set period of time (in this case seven years), after that interest rate adjusts once a year basing on the following things:
- The loan margin, which is established at the time of the loan approval and remains the same throughout the whole term of the loan.
- Economic indexes such as London Interbank Offered Rate (LIBOR), the cost of funds index (COFI), the monthly treasury average (MTA), or other. These indexes continuously change both up and down, and serve as indicators of the current market conditions.
- Caps stipulated in the mortgage agreement that limit either the maximum monthly payment or the maximum percentage of the interest rate change, so the borrower is protected against drastically increased payments.
Reasons to choose 7/1 ARM mortgage
- Longer period of a fixed interest rate compared to other ARMs.
- Lower initial interest rate than on fixed-rate mortgages.
- Easier to get approval for the loan since monthly payments during the adjustment period are smaller.
- In case you sell or refinance your home during the initial 7-year period, you will avoid variable interest rate.
An adjustable-rate mortgage can significantly reduce the costs of home financing compared to a fixed-rate mortgage, especially when economic indexes are initially high. However, you need to fully understand and measure potential risks before opting for an ARM. Use our free mortgage finder to discover 7/1 ARMs from various participating lenders and compare the latest offers.