Definition
A 7/1 ARM is a mortgage with an initial fixed interest rate for 7 years. Afterward, the rate changes once per year for the remainder of the loan.
Understanding 7/1 ARMs
A 7/1 adjustable-rate mortgage appears during the loan selection phase. It starts with a fixed interest rate for the first seven years. After that, the rate adjusts annually based on market conditions. This can lead to fluctuating monthly payments. Example: If your initial rate is 3% on a $200,000 loan, your monthly payment is about $843 for seven years. Afterward, the rate may rise or fall. It's not a guaranteed fixed-rate mortgage beyond those initial years. Understand that changes in the market will impact your future payments, unlike a fixed-rate mortgage that stays constant.
