7/1 ARM: When Does it Make Sense to Get This Mortgage?

Posted on Feb 14 2018 - 7:41pm by jc

Woman counting coinsA 7/1 adjustable-rate mortgage (ARM) is a loan program with a fixed interest rate for the first seven years. After the initial period, the rate can change once every year until the term ends. Based on several factors, the interest can increase or decrease over time.

ARMs may be less popular these days than fixed-rate mortgages because the interest rates are generally low, but there are instances when a 7/1 ARM can be advantageous. Any experienced mortgage lender in Oregon, Utah, or Texas would say that it could benefit you if you want to:

Secure a Much Lower Interest Rate

If the interest rate you qualify for is a bit too high, a 7/1 ARM is an option you should consider. Time may fly, but paying a mortgage rate lower than most people have over a seven-year period can give you tremendous savings. After all, other ways to obtain more favorable interest takes a lot of time. You might need months to improve your credit score or save money for a large down payment.

Minimize Your Monthly Repayments

The fixed-rate period of the 7/1 ARM guarantees lower monthly repayments for 84 months. For the first seven years, you’ll get to keep more money in your pocket and use it whichever way you like. Despite the risks, investing in stocks or mutual funds could be a wiser way to grow your wealth.

Get Rid of Your Mortgage Before the Initial Period is Up

If you refinance your mortgage or sell your property before you begin paying for the adjusted rate, a 7/1 ARM is for you. Considering most of your early repayments reduce the interest, not the principal, getting a discount for the first years makes financial sense.

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A 7/1 ARM isn’t for everyone. Even if you think it suits your situation, circumstances can change over time, so better weigh its risks against its rewards. This way, you can make an informed decision and be ready for its potential repercussions if you wish to keep it after the initial period.