What Is a 7/6 Arm?

When you are searching for your new home or possibly looking to refinance there are a plethora of mortgage options afforded to you. When you are confident you are not going to be in your home longer term you may want to consider a 7/6 arm.

A 7/6 arm is a mortgage which is amortized over 30 years just like a 30-year fixed loan but in this case the interest rate is fixed for only the first 7 years. Why would you consider it? There are a few good reasons. First, the interest rate on these programs tends to be .25% to .50% or lower than their 30-year fixed counterpart. That will help with your payment and cash flow. If you don’t believe you are going to be in the home for more than 7 years, then why pay the premium of 30-year fixed mortgage?

If you happen to be in the home for more than 7 years, then the loan becomes adjustable where the rate can adjust every 6 months starting at 7 years. The mortgage is based on certain indexes such as COFI or cost of funds index or CMT securities which are treasury securities. Remember, the interest rate can adjust upward or downward depending on what the overall interest rate and economic environment are doing.

Any adjustable-rate mortgage will have a margin associated with it and is a set fixed amount, normally 2.75 but can vary based on your credit score at the time you are obtaining the mortgage. To determine the adjusted rate the margin is added to the current index amount.

So, you can assume a certain amount of risk if you extend beyond 7 years but if you are certain, you are not going to be in the home then you essentially remove the risk. To learn more, speak to a trusted mortgage professional such as the Home Loan Advisors at Hall Financial.