What is a 7-year ARM?
A 7-year ARM is an adjustable rate mortgage, offering a lower fixed interest rate for seven years. You will have a fixed principle and interest payment for the first seven years of the term, then the rate can adjust based on the then-current market.
Why is a 7-year ARM popular with rising rates?
ARMs are popular when rates are rising. Taking out a mortgage loan with a fixed lower rate, for an introductory period, helps make a home purchase more affordable despite the environment.
What makes a 7-year ARM a good choice?
ARMs are particularly beneficial for buyers who plan to sell or refinance their home before the seven year fixed rate period ends. Should interest rates decrease in the future, you may be able to refinance your ARM into a lower fixed rate mortgage with no prepayment penalties.
How do 7-year ARMs compare to other mortgage rates?
7-year ARMs tend to have a lower initial interest rate than traditional 15-year or 30-year fixed-rate mortgages. After the initial seven years, the interest rate can adjust according to the then current market rates. Most 7-year ARMs have a cap on how high, and how low, an interest rate can go. This will be outlined in the mortgage agreement.
What do I need to consider when shopping for a 7-year ARM?
● Will you be maxing out your monthly budget with the 7-year initial rate?
● Are mortgage interest rates rising now?
● What is in the cap on the interest rate after the 7-year period is over?
● How long do you plan to live in this home?
Can I refinance my current mortgage to a 7-year ARM?
If you have a 15-year or 30-year fixed rate mortgage, and plan on selling your home within the next seven years, a 7-year ARM may be an excellent choice for you. You may lower your payments until you sell your home.
A 7-year ARM can be an advantageous way to finance a home purchase, especially in a rising-rate environment.
Federally insured by NCUA