7/1 ARM vs. 30-Year Fixed Mortgage

When shopping for a mortgage, it’s very important to pick a suitable loan product for your unique situation. As we are in a rising rate atmosphere, exploring an ARM loan is something that can help lower your payment in the near term. 

What does “ARM” mean?

An ARM stands for an Adjustable Rate Mortgage. Unlike your 30 and 15 year loans, these mortgages adjust after a period of time. 

How the 7/1 ARM Works

  • For the first seven years of the loan, your interest rate is fixed. 
  • After that the rate becomes annually adjustable for the remaining 23 years of the 30-year loan term


During the first seven years of the loan term, the rate is fixed, meaning it does not change month-to-month, or even year-to-year.

Let’s say your starting interest is 4.5%, that’s where it will remain until its first adjustment in month 85.

Starting on month 85, and during the remaining 23 years, the rate is adjustable, and can change once per year. That is why it is referred to as a “7/1” ARM. (7 years fixed, and adjust every year after that).

Note: You may also come across a “7/6 ARM,” which is fixed for the first seven years and then adjusts twice each year (every six months) thereafter. This program does not adjust every 6 years, like one may be lead to believe if applying the same logic as the 7/1 ARM.

Why Choose the 7/1 ARM?

  • You can obtain a lower interest rate (and monthly payment) at the beginning of the loan 
  • This loan type features a fixed interest rate for a full seven years
  • The average loan tends to be paid off or refinanced before 7 years, so you may not have to even worry about dealing with the adjustment.


Make Sure You Can Afford the 7/1 ARM After It Resets

  • It might be wise to look at the worst-case scenario
  • Which is the maximum interest rate your loan can adjust to
  • This ensures you can handle the larger monthly mortgage payments
  • Assuming you don’t sell or refinance or are unable to and your rate adjusts significantly higher


7/1 ARM Pros and Cons – a Recap

The Good

  • You get a fixed interest rate for seven years (84 months)
  • The rate is typically lower than a 30-year fixed
  • More of each monthly payment will go toward the principal balance instead of interest
  • Most homeowners move or refinance in less time than that


The Bad

  • It’s an adjustable rate that can adjust higher after seven years
  • Monthly payments may become much more expensive if you hold onto it
  • The interest rate discount may not be worth the risk of the rate adjustment
  • Could be stuck with the loan if unable to sell/refinance once it becomes adjustable


Want to discuss your options with an experienced loan officer? Call Professional Mortgage Advisors today!

(610) 742-2367
Thomas DiBiase – Vice President

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