Question:

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

Answer:

The 7/1 ARM or 7/1 adjustable rate mortgage is a stable mix between fixed-rate and an adjustable rate mortgage with all the advantages of low rates and monthly payment for a long period.

The 7/1 adjustable rate mortgage is a great choice for borrowers who are not sure whether they would like to keep their current home for more than 7 years. It gives them time to decide while taking advantage of minimum, interest-only, or principal and interest payment options that usually go hand in hand with any ARM.

The 7/1 ARM is usually taken for period of 30 years, with fixed low rate for the first 7. Then, the rate will adjust according to some index your lender is using and fully amortize within the remaining 23 years. A common cap structure for a 7/1 adjustable loan will be 5/2/5 or 5/2/6, which means that the first adjustment will be within 5% up or down, the annual is up to 2% up or down, and the lifetime cap is 5 or 6% up or down.

Often, a 7/1 ARM will go with a bi-annual adjustment so you may like to ask the lender about that.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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