The 7/6 ARM: An Adjustable Rate Mortgage Option

A 7/6 ARM is an adjustable rate mortgage option with a fixed-rate period of seven years, followed by a variable-rate period in which the interest rate can be adjusted once every 6 months. The biggest benefit of the 7/6 ARM comes from its six-month adjustment periods, which typically allow it to be offered at a lower initial interest rate than a similar loan. This difference might be able to save you a ton of money upfront. It’s a great option for people who plan on moving or refinancing within the next seven years.

7/6 ARM Basics

Rates. The initial interest rate is locked for the first 7 years; after that it is based on the SOFR (Secured Overnight Financing Rate) index plus a margin. Future rates and payments my vary as your loan adjusts relative to the SOFR index.

Adjustment. For a 7/6 ARM the initial interest rate is locked for seven years with the loan moving into an adjustment period afterward. During this time your interest rate may adjust every 6 months relative to the SOFR index. You will be notified months in advance of the adjustment and the new payment so you can plan accordingly.

What are the advantages of a 7/6 ARM?

Lower payments during the fixed-rate period. An ARM loan offers potential savings during the initial fixed-rate period compared to a standard 30 year fixed loan. The 7/6 ARM gives you seven years to plan for the future while taking advantage of predictable payments at a low interest rate.

Flexibility. If you think your life may change in the next few years, an ARM loan can be a great idea and a way to save money.

Interest Rate Caps. There are three different caps limiting how much the interest rate can increase on a 7/6 ARM: the initial adjustment cap (limiting how much the rate can increase after the initial locked period), subsequent adjustment caps (limiting how much the rate can increase during the adjustment period), and a lifetime cap (limiting the max the rate can increase during the life of the loan).

Next Steps

Thinking about homebuying or interested in more information about mortgage options? Columbia Credit Union’s team of home loans pros has you covered! Check out more info or get in touch here.