What is the loan 7/1 Year ARM?

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Hello,
I am planning refinance the mortgage of my home. I have questions about this kind of loan:7/1 Year ARM
What is the different of this loan with the regular loan 15 years, 30 years fixed?
Should I refinance with this kind of loan?
Thank you for your help.
Have a nice day.

1 Comment
  1. Reply
    L C
    May 3, 2011 at 8:17 am

    A 7 year ARM is a loan with a fixed rate for the first 7 years that has a rate that changes once each year for the remaining life of the loan. The change is usually tied with consumer price index. The fixed rate loan is you’ll have a fixed payment for the entire life of the loan.

    Usually, the 7/1 ARM has lower interest rate than the fixed rate, because the borrower bears more risk in interest rate. Which type of loan should one consider is a strategical question. In general, you should ask yourself after 7 years do you plan to sell you home? Do you think after 7 years you’ll have a better paying job? Or, Do you believe after 7 years the interest rate will be lower than today (which is impossible)? If you answer any one by yes, than you might consider to do ARM.

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