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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
Getting a mortgage is a big financial choice that needs careful thought about your plans, budget, and needs. Many people get a mortgage for 30 years, but some lenders offer shorter terms, like a 7-year mortgage. So can you actually get a 7-year mortgage?.
The short answer is yes, 7-year mortgages are available, but they come in the form of adjustable-rate mortgages (ARMs). This means the interest rate is fixed for the first 7 years, then adjusts periodically.
Below we’ll explore what 7-year ARMs are, their pros and cons, eligibility requirements, and how to find the best rates.
What Is a 7-Year ARM?
This type of loan has a fixed interest rate for the first seven years. It’s also known as a 7/1 ARM. Once the 7-year fixed-rate period is over, the interest rate changes every year based on how the market is doing.
The rate adjustments are tied to a benchmark interest rate index like the Secured Overnight Financing Rate (SOFR). The lender adds a margin or percentage points to the index to determine your new rate at each adjustment.
For example, if the index rate is 5% and your lender’s margin is 3%, your fully indexed rate would be 8%. If the index later rises to 6%, your new rate at adjustment would be 9% (6% + 3% margin).
Key Features:
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Fixed rate term: 7 years
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Adjustment period: Annually after year 7
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Lifetime cap: Limits max rate increase over life of loan
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Annual caps: Limit each yearly increase
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Index: Benchmark rate lenders add margin to
Pros of 7-Year ARMs
1. Lower Initial Interest Rate
The main appeal of a 7/1 ARM is a lower starting rate versus a fixed-rate mortgage. Rates are typically 0.5% to 1% lower compared to a 30-year fixed loan. This leads to lower monthly payments.
2. Lower Monthly Payments
That lower initial rate translates into lower principal and interest payments. This gives you more room in your budget compared to a fixed rate.
3. Good for Short-Term Plans
If you plan to move or refinance within 7 years, a 7/1 ARM takes advantage of lower short-term rates without the risk of future adjustments.
4. Potential Payment Decreases
If the index rate goes down, your mortgage payment might go down when it’s time to make the adjustment. This isn’t guaranteed, but possible in declining rate environments.
Cons of 7-Year ARMs
There are also some downsides to weigh:
1. Payment Shock Risk
Once the fixed period ends, your payment can jump significantly if rates are much higher than your starter rate. Make sure you budget for worst-case payment scenarios.
2. Unpredictable Payments
When your loan changes, you can’t be sure if rates will go up or down. This uncertainty makes personal budgeting difficult.
3. Not Ideal for Long-Term Homeowners
If you don’t plan to move for over 7 years, a fixed rate mortgage provides long-term predictability and stability in payments.
4. Limited Lender Options
Not all lenders offer 7/1 ARMs. So you may have fewer lenders to choose from versus more popular loan types.
Who Is a 7-Year ARM Best For?
A 7/1 ARM is a good fit if you:
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Are comfortable with the risk of rising payments after 7 years
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Plan to move or refinance within 5-7 years
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Want a lower initial rate and monthly payment
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Qualify based on the fully indexed rate, not just the start rate
This product is less ideal for borrowers wanting long-term stability or those on a tight budget with little wiggle room if rates increase.
7-Year ARM Eligibility Requirements
To qualify for a 7/1 ARM, you’ll need:
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A minimum credit score of 620
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A debt-to-income ratio below 50%
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At least 3% down payment on a primary residence
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Ability to qualify at the fully indexed rate
Solid credit and income are key to approval, since lenders want to see you can afford potential payment increases. Expect the underwriting process to be similar to other mortgages.
How Do 7-Year ARM Rates Compare?
Here’s how average 7/1 ARM rates stack up against common mortgage types:
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7/1 ARM: 6.5% APR
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30-year fixed: 6.9% APR
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15-year fixed: 6.1% APR
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5/1 ARM: 6.2% APR
As you can see, 7/1 ARMs offer slightly lower rates than popular fixed rate loans. But they are higher than shorter term ARMs.
Rates for all loans fluctuate daily based on bond market activity and lender programs. Checking rates from multiple lenders ensures you get the best deal.
Tips for Finding the Best 7-Year ARM Rates
Follow these tips to find competitive offers on 7/1 ARMs:
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Check rates from at least 3 lenders
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Compare overall closing costs and fees
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Look for lenders offering discount points to buy down the rate
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Ask about rate caps and worst-case scenarios
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Get prequalified to view personalized rates
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Apply with multiple lenders to leverage offers against each other
The right lender for you depends on more than just rate. Weigh factors like customer service, reputation, and transparency.
Alternatives to 7-Year ARMs
Here are a few alternatives if a 7/1 ARM doesn’t seem like the right fit:
5/1 ARM – Offers an even lower initial rate with a shorter 5 year fixed period. But comes with earlier exposure to rising rates.
10/1 ARM – Has a longer 10 year fixed period before rates adjust. This reduces risk of payment shock.
15-Year Fixed – No rate adjustments with predictability of a shorter term. But comes with a higher monthly payment.
30-Year Fixed – Gives payment stability for the full 30 year loan. But typically has the highest rates of these options.
The Bottom Line
7-year ARMs can make sense for some savvy homebuyers. But like any ARM, they come with risk of rising payments when the fixed period ends. So make sure you go in with eyes wide open about the pros, cons, and alternatives before committing.
With proper planning for potential rate hikes, a 7/1 ARM may provide the lowest upfront costs and monthly payments if you only plan to keep it short-term. Weigh your timeline and comfort level before deciding if a 7-year mortgage is the right move.
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- A 7/1 ARM is an adjustable-rate mortgage (ARM) with a fixed interest rate for the first seven years. After that, the rate changes every year until the end of the mortgage term, which is usually 30 years.
- Most of the time, the first fixed rate on a 7/1 ARM is lower than the rate on a similar fixed-rate mortgage. This gives you lower monthly payments to start.
- If you know you’ll sell or refinance the home in the first seven years, a 7/1 ARM might be a good choice. If you don’t know how long you’ll stay in the house or how you’ll pay for a rate hike, a fixed-rate loan might be better for you.
Adjustable-rate mortgages (ARMs) tend to have attractive initial interest rates, with introductory rate periods of three, five, seven or 10 years. Here’s what to know about the seven-year version of this mortgage, and whether it makes sense for you.
How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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Calendar Icon 6 years of experience Laurie Richards is a mortgage editor on Bankrate’s Home Lending team.
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Calendar Icon 13 Years of experience Suzanne De Vita is a managing editor on Bankrate’s Home Lending team, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters.
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Mark Kantrowitz is an expert on student financial aid, the FAFSA, scholarships, 529 plans, education tax benefits and student loans.
At Bankrate, we take the accuracy of our content seriously.
“Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced.
Their reviews hold us accountable for publishing high-quality and trustworthy content.
Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy. Bankrate logo.
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the things that people care about most: the newest rates, the best lenders, how to buy a home, refinancing your mortgage, and more. This way, you can feel confident in the choices you make as a buyer and as a homeowner. Bankrate logo.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
Fixed vs ARM Mortgage: How Do They Compare? | NerdWallet
FAQ
Can you get a 7-year mortgage?
A fixed rate mortgage is a type of mortgage that gives a fixed interest rate for a set period. This means that every month you will pay the same amount, no matter what the Bank of England base rate does. Fixed rate mortgage deals can typically last for two, five, seven or even ten years.
Is there such a thing as a 7-year mortgage?
Also called a 7-year ARM, this option has a fixed interest rate for the first seven years, then adjusts every six months.
What is the shortest term mortgage you can get?
Though typically a mortgage lasts for around 25 years, you can get longer mortgages over 40 years. Short-term mortgages, on the other hand, can last anywhere from six months to two or five years.
Can you pay your mortgage in 7 years?
Paying off your mortgage in 5 to 7 years is possible with the right strategies and commitment. Making bi-weekly payments can significantly reduce your loan term.