What is a 7/6 ARM Mortgage?

How Does a 7/6 ARM Mortgage Work?

A 7/6 ARM (Adjustable-Rate Mortgage) is a type of mortgage loan where the interest rate remains fixed for the first seven years of the loan term and then adjusts every six months thereafter for the remaining duration of the loan. The "7" represents the initial period in years when the interest rate is locked, and the "6" indicates the frequency, in months, of rate adjustments after the initial fixed-rate period.

ARM loans are typically expressed with two numbers: the first number indicates the length of time the rate remains fixed, and the second number shows how often the rate will adjust after that period. Traditionally, ARMs were more commonly offered with annual adjustments (e.g., 5/1 ARM, where the rate adjusts every year after the initial period). The 7/6 ARM, however, adjusts every six months after the first seven years, which could mean more frequent changes in your mortgage payment amount in the latter part of the loan term.

The adjustments in interest rates are usually tied to a specific benchmark index, such as the Secured Overnight Financing Rate (SOFR) or the London Interbank Offered Rate (LIBOR), plus a certain margin. This means that after the initial fixed-rate period, your interest rate could go up or down based on changes in the broader financial market, which would, in turn, increase or decrease your monthly mortgage payments.

This type of mortgage can be attractive to borrowers who plan to sell their home or refinance before the adjustable period begins, or who anticipate a future increase in their income, as it offers lower initial interest rates compared to fixed-rate mortgages. It also carries the risk of potentially higher payments in the future if interest rates rise though.