Mortgages: The 7/1 ARM

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If you are trying to decide which type of adjustable rate mortgage to get, consider a 7/1 ARM. This type of ARM product will give you seven years until your first adjustment period, which means you have a fixed rate for seven years. If you are considering selling your home in that seven-year period, it can make sense to choose a 7/1 ARM because the interest rate is lower than fixed rates are.

7/1 ARM Benefits

Even though you are obtaining a seven year adjustable rate loan, the payments can be based on a 30 year loan term. This allows you the benefit of the lower payment, while retaining the option to fix your rate when the adjustment period arrives.

Many lenders also offer the option of making your 7/1 ARM loan interest-only. You will not have to make any principal payments during the seven year period. If you are able, it is still a good idea to periodically make principal reductions in order to reduce the balance of your loan. For example, if you plan to sell an asset in a few years, you could then use part of the proceeds from the sale to pay down your loan principal.