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7/1 ARM
A 7/1 ARM is an adjustable-rate mortgage that has an initial interest rate for seven years, and thereafter has an adjustment interval of one year. The adjustment is based on another rate -often the yield on a Treasury note. If the loan is convertable after the 7 year period the borower has the option of changing to a fixed rate mortgage without having to refinance.

Advantages

  • Lower initial monthly payment
  • Lower payment over a shorter period of time
  • Rates and payments may go down if rates improve
  • May qualify for higher loan amounts (Jumbo Mortgage)

Disadvantages

  • More risk than a 10/1 ARM
  • Payments may change over time
  • Potential for high payments if rates go up
Planned Years Living in House Recommended Program
  • 1-3
  • 3-5
  • 5-7
  • 7-10
  • 10+
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Loan Overview
The monthly interest rate for this 7/1 ARM is fixed for an initial term of 7 years. Each year after that term, the rate will be adjusted and calculated on the basis of the average yield on U.S. Treasury.
7/1 ARM Quick Compare
Pros Cons Risk Best When
Lower payment over a shorter period of time.  Payments may change over time.  Potential for high payments if rates go up.   Best when you are looking to qualify for higher loan amounts.  

Sample Scenario

Your starting monthly payment is $916.67.

Your interest only adjustable rate loan of $200,000.00 has a starting payment of $916.67.

Your interest rate remains fixed at 5.500% for 84 months, after that time your interest rate is expected to change by 0.25% every 12 months.

After 23 years, your loan payments will increase to fully pay off your loan over the remaining term of 7 years. Your highest monthly payment, in this scenario, would be $1,699.14.

Mortgage Summary
Interest Only Mortgage Summary
Mortgage amount $200,000.00
Term 30 years

Interest only payments at a fixed rate for 7 years. After 7 years, the loan is recast to fully amortize the outstanding balance over the remaining 23 year term of the loan.

Starting Interest rate 5.500%
Starting monthly payment 916.67
Total payments $503,541.42
Total interest $305,240.53
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