Compare Mortgage Rates on a 7/1 ARM
An adjustable-rate mortgage (ARM) usually comes with a lower interest rate than a fixed-rate loan for the same amount. But it means that your lender can adjust your rate periodically. That changes your monthly mortgage payment, depriving you of stability in your budget.
If you want to combine the upside of an ARM with the predictability of a fixed-rate mortgage, you might consider a hybrid option like the 7/1 ARM. This type of mortgage gives you several years of fixed payments before your rate starts adjusting, so it can be ideal for certain homeowners.
What is a 7/1 ARM?
This is an adjustable-rate mortgage. The “7” and the “1” tell you about how that adjustment works.
The “7” means that you get seven years of fixed payments during what lenders call the introductory period. The principal and interest (P&I) due on your mortgage won’t change for your first 84 payments (seven years * 12 months in a year).
After your introductory period ends, that “1” comes into play. It indicates that your lender can adjust your interest rate every one year (i.e., annually). The adjustment they can make depends on how the market index to which your mortgage is tied has been performing. You can learn more about how this works in our guide to ARMs.
Who benefits from a 7/1 ARM?
With a 7/1 ARM, you get a fairly good chunk of time with predictable payments, and you’ll almost certainly still qualify for a lower interest rate than if you choose a fixed-rate loan.
That said, these loans are only a good fit if they align with your future plans. If you’ll sell the house before the seven years is up or you know your income will go up later (e.g., you’re a medical student in residency), a 7/1 ARM might be a great home loan for you.
Crunch the numbers. Our ARM calculator lets you figure out how high your monthly payment could go based on your specific loan caps. That helps you make sure you’ll be able to afford your home long-term.
To make sure it’s right for you, you should also compare the rate you’d get on a 7/1 ARM against rate offers on other types of mortgages.
Pros and cons of a 7/1 ARM
If you think this kind of loan might be a good fit, weigh its drawbacks and advantages before taking next steps.
Pros of a 7/1 ARM
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Because they give lenders flexibility to make rate adjustments in the future, ARMs generally come with lower interest rates than fixed-rate loans.
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A 7/1 ARM gives you a longer period with fixed payments than a 5/1 ARM.
Cons of a 7/1 ARM
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If the index attached to your loan climbs in the first seven years, you’ll face a bigger monthly payment after your introductory period ends. If the index keeps performing, your rate could keep climbing at each adjustment period.
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Because they come with details like the margin to which they’re tied, caps on rate adjustments, and a margin that determines the rate, ARMs are harder to understand than fixed-rate loans.
How to compare 7/1 ARM Rates mortgage rates
If you only take one piece of advice when you’re getting a mortgage, let it be this: compare rates from at least three different lenders. Doing so can save you thousands of dollars over the life of your loan.
To make it easier for you to put the work in here, follow these steps:
Step 1: Understand your borrower profile
First, you want to get a handle on how mortgage lenders are going to see you. If you look like you’re going to be able to repay your home loan fairly easily, they’ll offer you more favorable conditions. If you look high-risk, you’re going to pay more for your mortgage. Specifically, you’ll be charged a higher interest rate.
So, what makes a borrower low- or high-risk? To decide what kind of loan to offer to you (if any), lenders look at a lot of factors. The biggest ones here include:
- Your monthly income — you don’t want an overly large chunk to have to go toward paying your monthly mortgage bill, which lenders measure with your debt-to-income (DTI) ratio
- Your credit score, which essentially tells them how good you’ve been with managing money in the past
- Your loan-to-value (LTV) ratio (higher is riskier) — the price of the house and your down payment size both come into play here
If you’re not in good shape in any of these areas, putting in some work before you buy (e.g., working on your credit score, lowering your DTI ratio) can help you get a lower interest rate.
Step 2: Use rate tables to see what’s on offer today
There are lots of resources online that show you rate offers from leading lenders. Use a mortgage rate table to get a feel for what kind of interest rates are available from financial institutions that provide home loans in your area.
Ideally, that rate table lets you input personal information, like your credit score and the price of the house you want to buy. This way, the rates you get shown should align with what you’re actually eligible to get. A lot of lenders advertise low starting rates, but only the “best” borrowers will be approved for them once they apply.
Step 3: Get preapproved with three lenders
Once you’ve picked out a few lenders that look good to you, go through their preapproval process. That will mean filling out some paperwork, but it’s the best way to figure out what you can really qualify for in terms of loan size and interest rate.
Have financial documents — like your bank statement and pay stubs — handy to make it easier to complete your preapproval applications.
Step 4: Compare preapprovals
When you get preapproved, the lender should give you documentation about your potential mortgage. Ideally, this gives you a feel for the total amount you’re borrowing, the repayment term, the interest rate, fees, and closing costs.
Line up your quotes from each lender and go through them, paying special attention to the annual percentage rate (APR). This tells you how much you’ll pay each year for the loan including not just interest, but also fees. By looking at APRs, you get a clear idea of what you’ll truly pay if you choose that specific mortgage. This helps you identify the best option for yourself and your financial goals.
If you’re ready to start comparing 7/1 ARM Rates rates, use our rate table to get started. We have fields up top where you can input key details like your credit score range and zip code so we can best tailor the mortgage rate offers to you.