When thinking about a 7-year ARM mortgage, which may also be referred to as a 7/1 ARM, several different considerations should be weighed. Firstly, the borrower should research all of the details of the commitment, such as any rate increase percentage caps and what exactly happens after the seven years are up. Secondly, it is important to shop around for rates at different banks.
ARM stands for Adjustable Rate Mortgage; a 7-year ARM mortgage refers to an adjustable rate mortgage in which the loan remains fixed for the first seven years of the loan, and then increases after those seven years are up.. This is why it is important to determine if there is a rate cap, such as 5 percent, on the amount that the loan can increase. An ARM without a rate cap can get quite expensive once it adjusts after seven years. Some people choose a 7-year ARM mortgage if they know they will either be refinancing or moving out of their homes in less than seven years, in which case this consideration is not as important.
One of the main benefits of choosing a 7-year ARM mortgage is that they often carry much lower initial interest rates than traditional fixed mortgages. For this reason, shopping around and getting mortgage quotes at a number of different banks can be a good idea to ensure that you find the lowest interest rate, and save as much money as possible in the mortgage. At this point, it is also important to make sure you have a clean credit report and good credit history, which will also help to ensure that you get the best rates on your mortgage.
When you are choosing any type of mortgage, be sure to discuss all your options and any associated fees, and ask any questions you may have. In some cases, a 7-year ARM mortgage can be a good choice, but for others it can be more of a burden than a help, and it is necessary to understand exactly how it works. Keep in mind that a 7-year mortgage that is actually a short-term mortgage might feature a balloon payment at the end, which can be quite a lot depending on the size of the mortgage, and is something that will need to be planned for.