7/1 ARM Mortgage Rates

Compare today's current mortgage and refinance 7 year ARM interest rates.

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When buyers start shopping for a mortgage, they often look no further than a 30-year fixed mortgage, the most common loan product for homebuyers. But the smartest buyer understands that doing your research is key to finding the best deal in home loans, and an adjustable rate mortgage like the 7/1 ARM should be on your list. With multiple options in terms of fixed vs. adjustable terms, buyers have a lot of freedom to choose a product that best fits their individual needs. Although the idea of an adjustable rate later in the mortgage, most buyers simply refuse to consider this potentially money-saving loan. But “knowledge is power” and the more you understand about the ARM, the better it looks!

The country’s housing market is tight, with average home prices having skyrocketed in the last few years, including a rise of 13.2% from 2020 to 2021 alone! And with this tight market comes even more competition to get a contract on your dream house–many homes are on the market less than a week so the old saying “You snooze, you lose” rings true. So, let’s find out what’s scary (and not-so-scary) about the 7/1 ARM.

What is a 7/1 ARM?

One of multiple options available in ARM mortgage products, the 7/1 adjustable-rate mortgage (ARM) is a home loan with one interest rate for a set period followed by a rate which changes at a specific frequency. As we have mentioned with other ARMs, the X/Y ratio corresponds to the following:

  • First Number (X) is the number of years in which your interest rate is fixed. It will not change during this period, in this case, the first 7 years.
  • Second Number (Y) is the frequency in which the rate will change after the first period has lapsed. In this case, after the 7-year period has ended, the interest rate will change annually.

Traditionally, the longer the term, the higher the interest rate. The 7/1 ARM is well-liked by borrowers because of the length of time the initial rate is locked in. This gets most buyers to a comfortable state in their home ownership experience.

How does the 7/1 ARM work?

After the 7-year fixed period, the interest rate (and your monthly payments) will change annually, reflected in the then-current interest rates, which help the borrower save a fair amount money during the initial fixed term.

That nice initial rate is like a dangling carrot for homebuyers. But don’t be fooled…the rate can (and likely will) change, and in the case of the 7/1 ARM, it will do so on an annual basis. From this point on, you need to pay close attention to interest rates, so you aren’t shocked by a major change. To protect borrowers, most ARMs will include an annual ARM cap, a limit on the interest rate or dollar amount you may have to pay. By establishing caps, the financial industry shields borrowers from a potentially devastating situation where the regular payments become outrageously high.

The market force on the 7/1 adjustable-rate mortgage (plus the new 7/6 ARM)

At the end of the fixed rate period (and later at the end of each rate period), your lender will consider current market rates and add the margin amount to determine the new mortgage rate and monthly payment. To understand the INDEX and the MARGIN, here is an explanation:

INDEX: The index is a complication of different interest rates on the market, expressed as an average. There are several indexes available to lenders, including:

  • Secured Overnight Financing Rate (SOFR), based on the rates that large financial institutions pay each other for overnight loans and is well-respected due to its transparency.
  • Constant Maturity Treasuries (CMT), the monthly one-year CMT value is often tied to ARMs.
  • The Cost of Funds Index (COFI) index is calculated as the sum of the monthly average interest rates for marketable Treasury bills and for marketable Treasury notes, divided by two, and rounded to three decimal places.
  • The London Interbank Offered Rate (LIBOR) is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans, but due to recent scandals and questions around its validity as a benchmark rate, it is being phased out.

MARGIN: In the business of originating home loans, lenders will add an additional percentage to the index to arrive at your final rate. For example, if you have a margin of 3.25% and your rate adjusts based on the LIBOR index (at 0.1%), your final interest rate would be 3.35%.

Thanks to a change in indexing due to the LIBOR’s drop in popularity, the 7/6 ARM is a newer mortgage product being offered by some lenders. In the 7/6 ARM mortgage, after the 7-year fixed period, interest rates are readjusted every 6 months instead of annually (1 year) like the 7/1 mortgage.

To be sure you are choosing the right lender for your mortgage, don’t forget to ask the financial institutions during your search. Good lenders are transparent about these fees—the index they use and their margin—to allow prospective borrowers the opportunity to make a well-informed choice.

Interest rate cap–reducing the risk of steep changes

While adjustable rate mortgages carry some risk of rate changes, the financial industry has some safeguards in place. Rate adjustments are limited, to prevent “sticker shock” when rates have changed a lot at the time the loan is being re-adjusted. Interest rate changes are usually capped in three different adjustments, called the initial adjustment, subsequent adjustment, and the lifetime cap. The most common rate cap structure is 2/2/5:

  • The first rate adjustment is called initial adjustment cap–when the 7 year period ends. In the common 2/2/5 example, the lender is limited to adjusting the interest rate no more than 2 percentage points higher than the initial rate, regardless of interest rates at the time.
  • Subsequent adjustment caps are used each time the 7/1 ARM interest rate changes. In the 2/2/5 cap, this interest rate is also limited to a maximum 2 percent change over the current rate.
  • The final number in the ratio is called the lifetime cap. The maximum amount the interest rate changes is the last number in the ratio; in the case of the 2/2/5 cap, that max is five percent.

Important interest rate factors:

The truth is that adjustable rate mortgages could offer lower interest rates. But as with all loans, you must remember the important financial factors driving all mortgages:

  • FICO score. Your personal financial “reputation” is reflected in your FICO score. A rating of 700+ is considered a good score.
  • Mortgage use. Typically refinance mortgages are slightly higher than purchases.
  • Property Use. Lenders are eager to offer the best rates for primary homes, with higher interest rates for second homes and rental properties.
  • LTV (loan-to-value) Ratio. When you borrow a higher percentage of the home’s purchase price or value, the interest rate is generally higher (you represent a higher risk).
  • Conventional/Low Down Payment. Since ARMs are considered a higher risk loan product, most lenders look for borrowers with a higher down payment.
  • Jumbo vs. Conforming Loans. Jumbo ARM loans exceed the conforming lending limits set by the federal government. Only the highest qualified borrowers are eligible for a Jumbo ARM.
  • Location. Local economic factors can affect mortgage interest rates. A stronger economy means a stable real estate market and lower interest rates, where a less stable economy and real estate market could equate to a higher risk for foreclosure and thus, higher interest rates.
  • Buydown. When borrowers put some money down up front to lower the interest rate, they can save thousands of dollars. This option isn’t always the best choice and one to discuss with your lender.

How long is a 7/1 ARM term?

You might think that a 7/1 ARM is a short-term mortgage. But the truth is that this term has an overall length of 30 years, giving you a 7-year fixed period and adjustments made annually (or semi-annually in the case of the growing 7/6 ARM) for 23 years of the remaining term. If you are looking at a 7/1 ARM, you can get a clear comparison with the ever-popular 30-year fixed mortgage.

Is a 7/1 ARM right for you?


Lower interest rate to start. That low initial interest rate is what draws most borrowers to consider a 7/1 ARM. You can get by on a lower income for the first 7 years or simple take advantage of the low monthly payments to pay down the principal during this time. This strategy helps you to get a jump on your total loan, giving you more sway over the interest rates you may qualify for should you choose to refinance before the term is up.

Flexibility to Refinance. If you notice interest rates changing (for the better) during or at the end of your 7-year term, you can take advantage of this! You can consider another ARM (with the most competitive rates) or even switch to a fixed-term mortgage if the rates are lower.

Great option if you plan on moving. If your career dictates that you move frequently or you plan on moving before your initial term is up, you can best manage the lowest interest rates with an ARM.


Total interest can be much higher. After the initial 7-year term, your ARM rate will be readjusted. If interest rates are high, you may have accumulated significantly more in interest at the end of the loan when compared to a fixed rate mortgage.

Risk of rising mortgage payments. If your interest rises after the initial 7-year term, the mortgage payments will be higher. If you have created a budget based on your 7-year initial term, you could struggle financially if there is a significant increase in monthly payments.

Savings may not outweigh costs of refinancing. An educated borrower is a smart borrower. Before deciding on a 7/1 ARM, get a pencil and estimate the costs of refinancing. Your plan may not be as good as you think if the money you save in the short term is lost in refinance expenses.

An ideal 7/1 ARM consumer

If interest rates for ARMs are significantly lower than fixed-rate mortgages and you are looking for that additional cash flow, the 7/1 ARM may be the perfect option for you. Additionally, for buyers who know they will be moving, refinancing, or stepping up to a larger home within that initial period, an ARM is a great option.

7/1 ARM mortgage rates change daily and are determined by 5 major driving factors which you can control: Property type and use, loan-to-value ratio, your FICO score, and whether you are purchasing or refinancing the mortgage.

Getting the lowest 7/1 ARM jumbo refinance rate depends on 4 main elements: the refinance type (rate/term or cash out), the amount of equity you have in the property, any second mortgages, liens or subordinate financing you already have, and your financial report card.

Jumbo (loan amount >$548,250) 7/1 ARM rates are typically higher than conforming loans. This process should also include comparing loan estimates, having a 740+ FICO score, 60% (or less) loan-to-value, and the property being your primary residence.

Conforming (loan amount <$548,250) 7/1 ARM rates are typically lower than jumbo loans. This process should also include comparing loan estimates, having a 740+ FICO score, 60% (or less) loan-to-value, and the property being your primary residence.

To put it simply, if you think you may relocate within the first 7 years of your loan, you could save a significant amount of money when compared to the typical 30-year fixed mortgage. Even if you do not move, you still have the option of refinancing at a lower rate and a shorter term, having paid a generous chunk of money in principal with the competitive 7/1 ARM rate.

Get started with a purchase or refinance mortgage loan today!

Get started with a purchase or refinance mortgage loan today!




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