I’ve been writing and editing stories in the personal finance sphere for two decades, for publications like Business Week and Investopedia, covering everything from entrepreneurs to taxes. To help you find the right one for your needs, use this tool to compare lenders based on a variety of factors. Bankrate has reviewed and partners with these lenders, and the two lenders shown first have the highest combined Bankrate Score and customer ratings.

How does an adjustable-rate mortgage work

As his investments grow, he’s not only ready for potential rate increases but also building wealth. At the cusp of a booming tech career, Clara expects her salary to skyrocket in the next few years. While her current budget allows for modest monthly payments, she knows she can handle higher rates later on. With a 7/1 ARM, she benefits from low initial payments, giving her breathing space until her big promotions kick in. Jake is a consultant whose career often whisks him away to international projects.

Frequently asked questions about 7-year ARM

ARMs have caps, so your rate can only go up to a certain limit. Make the perfect choice.We give you the tools to find the right home loan. My Perfect Mortgage is provided by the friendly folks at My Perfect Leads, LLC. Boston has a bachelor’s degree from the Seattle Pacific University.

Mortgage Calculator Results

These are ARMs that allow you to convert your balance to a fixed rate, usually for a fee. Lenders are free to offer different terms, such as 15-year rate lock periods or letting borrowers select their own payment structure and schedule. When the interest rate of an ARM adjusts, it will be set to a new rate, typically based on a benchmark or index, plus an additional few percentage points (called a margin). Your loan documents will tell you what index and margin are used. We are an independent, advertising-supported comparison service.

What is a 7/1 adjustable-rate mortgage (ARM)?

You’ll have a more balanced perspective by considering pros and cons, helping you make sounder financial decisions. Before the 2008 housing crash, lenders offered payment option ARMs, giving borrowers several options for how they pay their loans. The choices included a principal and interest payment, an interest-only payment or a minimum or “limited” payment. The best way to get an idea of how an ARM can adjust is to follow the life of an ARM.

Conforming loans

While our priority is editorial integrity, these pages may contain references to products from our partners. If you plan to sell your home or pay off your mortgage within seven years, then a 7-year ARM may be right for you. Rates on ARMs are usually lower than rates on comparable fixed-rate mortgages, so their monthly mortgage payments are 7 year arm lower. The 7-year ARM offers these lower rates and the predictability of a fixed-rate mortgage for the first seven years. In some ways, ARMs can be easier to qualify for than other loans. Their lower initial rates mean smaller payments, which can keep your debt-to-income ratio lower than with a fixed-rate loan that has a higher rate.

What all those numbers in your ARM disclosures mean

During periods of declining rates you’re better off with a mortgage tied to a leading index. But due to the long initial period of a 7/1 ARM, this is less important than it would be with a 1 year ARM, since no one can accurately predict where interest rates will be seven years from now. With a 7/1 loan, though the index used should be factored in, other factors should hold more weight in the decision of which product to choose. The initial rate, called the initial indexed rate, is a fixed percentage amount above the index the loan is based upon at time of origination. Though you pay that initial indexed rate for the first five years of the life of the loan, the actual indexed rate of the loan can vary. It’s important to know how the loan is structured, and how it’s amortized during the initial 7-year period & beyond.

year ARM vs. 30-year fixed

A mortgage loan officer can offer you guidance on choosing the right loan for your specific needs. 10-year ARMs are increasingly popular as they combine significant savings for the initial rate period with longer protection from market-based interest rate fluctuations. Prequalify to see how much you might be able to borrow, start your application or explore 7-year adjustable-rate mortgage (ARM) rates and features.

• Most adjustable-rate mortgages are accompanied by a rate cap, limiting how much your interest rate can increase or decrease.
• A 5/1 ARM has a fixed rate for the first five years, whereas a 7/1 ARM locks in the rate for the initial seven years.
• She’s a freelance artist who goes where inspiration strikes, so committing to a 30-year fixed rate feels like a chain.
• When that rate goes up, so will your interest rate and your monthly mortgage payment.
• They assume you have a FICO® Score of 740+ and a specific down payment amount as noted below for each product.

What Are The Benefits of a 7-Year Mortgage?

• They assume you have a FICO® Score of 740+ and a specific down payment amount as noted below for each product.
• During the adjustable-rate period, the rate becomes variable based on this index and a margin that’s set by the bank.
• She’s a freelance artist who goes where inspiration strikes, so committing to a 30-year fixed rate feels like a chain.
• See how much you could qualify to borrow and what your estimated rate and payment would be.
• The table below is updated daily to give you the most current interest rates and APRs when choosing a home loan.
• The FHFA also publishes a Monthly Interest Rate Survey (MIRS) which is used as an index by many lenders to reset interest rates.
• It’s important to know whether the loans you are considering have a higher initial adjustment cap.

You can use the menus to select other loan durations, alter the loan amount, or change your location. With an adjustable-rate mortgage (ARM), your rate and payment may change periodically. If you’re shopping for a home mortgage but aren’t sure about your options, it may be time to find a mortgage loan officer.

Understanding the Benefits of a 100 LTV HELOC

When housing values took a nosedive, many homeowners ended up with underwater mortgages — loan balances higher than the value of their homes. The foreclosure wave that followed prompted the federal government to heavily restrict this type of ARM, and it’s rare to find one today. The monthly payment shown is made up of principal and interest. It does not include amounts for taxes and insurance premiums. The monthly payment obligation will be greater if taxes and insurance are included. Further variations include FHA ARMs and VA ARMs, which are basically the government-backed versions of a conventional ARM, with their own set of qualifications.

ARM caps in action

Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. While 30-year fixed terms can offer the same interest rate stability for the loan’s lifetime, homeowners can expect to pay more during the first seven years compared to a 7-year ARM. Both begin with fixed terms and convert to an adjustable-rate mortgage after the initial period.

• Lenders nationwide provide weekday mortgage rates to our comprehensive national survey.
• Around 8 percent  of U.S. households have adjustable-rate mortgages.
• For these averages, the customer profile includes a 740 FICO score and a single-family residence.
• Exploring both sides of the 7/1 ARM rates is essential to making the most out of your investment.
• If your 30-year fixed payment is too high, you can consider reducing your payment by refinancing into a 7-year ARM or another type of adjustable loan.
• With the money he saves from the lower initial rates of a 7/1 ARM, he invests in booming stocks.
• Not all loan programs are available in all states for all loan amounts.
• Homebuyers typically choose ARMs to save money temporarily since the initial rates are usually lower than the rates on current fixed-rate mortgages.
• It takes just a few minutes and won’t affect your credit score.

Cons of a 7/1 ARM

I’m most interested in providing resources for aspiring first-time homeowners to help demystify the homebuying process. After seven years, the interest rate on a 7/1 ARM adjusts annually. That can mean big changes to how much interest accrues, how much you owe and how much you have to pay every month. 7-year ARMs for home loan amounts above the conforming loan limits are called jumbo loans. In 2022, the conforming loan limit is $647,200 in most areas of the country, rising to $970,800 in expensive locations. Let’s look at an example of an ARM loan with a 5/2/5 rate cap structure.

Current 7/1 ARM rates

• Exploring both sides of the 7/1 ARM rates is essential to making the most out of your investment.
• If the index rate increases substantially, so could your mortgage payment.
• A 7-year ARM loan is a variable-rate loan with an initial fixed-rate feature.
• Homebuyers typically choose ARMs to save money temporarily since the initial rates are usually lower than the rates on current fixed-rate mortgages.
• If your 30-year fixed payment is too high, you can consider reducing your payment by refinancing into a 7-year ARM or another type of adjustable loan.
• Not all loan programs are available in all states for all loan amounts.

Weigh both sides, crunch the numbers and trust yourself to make an informed choice. Fixed interest rate for seven years, then annual adjustments. An ARM doesn’t make sense if you’re buying or refinancing your “forever home” or if you can only afford the teaser rate. A home loan with an interest rate that remains the same for the entire term of the loan. Compare a variety of mortgage types by selecting one or more of the following.

• A 7-year ARM has an initial fixed rate for seven years and an adjustable rate for the remaining life of the loan.
• Plus, see a conforming fixed-rate estimated monthly payment and APR example.
• I’ve covered mortgages, real estate and personal finance since 2020.
• Most ARMs have a rate cap that limits the amount of interest rate change allowed during both the adjustment period (the time between interest rate recalculations) and the life of the loan.
• If you extend your loan term, you may pay more interest over the life of your loan.
• It might be a good fit If you’re looking to finance a high-value property and anticipate a significant income increase in the coming years.
• Your final rate will depend on various factors including loan product, loan size, credit profile, property value, geographic location, occupancy and other factors.
• Your monthly payment could increase or decrease after the introductory period depending on how the index rate fluctuates.

The numbers shown (for example, 10/1 or 10/6) represent the fixed-rate period (10 years) and the adjustment period of the variable rate (either every year or every six months). ARM rates, APRs and monthly payments are subject to increase after the initial fixed-rate period of five, seven, or 10 years and assume a 30-year term. Interest rates for 7/1 ARM loans, as well as for all mortgage types, constantly change. The average 7/1 ARM interest rate was 6.69 percent on Monday, January 06, 2025, according to Bankrate’s survey of national lenders.

With an adjustable-rate mortgage (ARM) you can enjoy a lower rate and monthly payment during the initial rate period compared to fixed-rate loans. Prequalify to see how much you might be able to borrow, start your application or see current refinance rates instead. Bankrate.com is an independent, advertising-supported publisher and comparison service.

Adjustable-Rate Mortgage & Rates

You’ll see these loans advertised as 3/1, 5/1, 7/1 or 10/1 ARMs. Occasionally the adjustment period is only six months, which means after the initial rate ends, your rate could change every six months. With an ARM loan, the initial interest rate is fixed for a set period and then becomes variable, adjusting periodically for the remaining life of the loan. For example, a jumbo 10/1 ARM has a fixed rate for the first 10 years and an adjustable rate for the remaining duration of the loan, adjusting every year. A 7/6 ARM has a fixed rate for the first seven years and an adjustable rate for the remainder of the loan, adjusting every six months.

For this example, we assume you’ll take out a 5/1 ARM with 2/2/6 caps and a margin of 2%, and it’s tied to the Secured Overnight Financing Rate (SOFR) index, with an 5% initial rate. The monthly payment amounts are based on a $350,000 loan amount. An adjustable-rate mortgage is a home loan with an interest rate that changes during the loan term. Most ARMs feature low initial or “teaser” ARM rates that are fixed for a set period of time lasting three, five or seven years. SOFR ARMs use the Secured Overnight Financing Rate (SOFR) index to determine what the interest rate does after the initial fixed-rate period. During the adjustable-rate period, the rate becomes variable based on this index and a margin that’s set by the bank.

　

　

---