"The term "7/6 ARM" breaks down like this: "7" = The number of years the interest rate stays fixed at the beginning of the loan. "6" = How often the rate can adjust after the fixed period - in this case, every 6 months.. This structure is part of a newer generation of ARMs that adjust twice a year after the initial fixed term. For example, a 7/1 ARM (common in the past) adjusted once per year, but most modern ARMs now use a 7/6 format."
"During the first seven years, your interest rate and monthly payments are stable. Many borrowers choose ARMs because the initial rate is usually lower than a 30-year fixed loan, which can make monthly payments more affordable during this period. Once the fixed period ends, your interest rate adjusts twice a year. Each adjustment is based on: New interest rate = Index + Margin, subject to rate caps. Lenders apply caps to protect borrowers from drastic increases:"
A 7/6 ARM locks the interest rate for the first seven years of a 30-year mortgage, then permits rate adjustments every six months thereafter. Initial rates on a 7/6 ARM are commonly lower than comparable 30-year fixed rates, producing smaller monthly payments during the fixed period. After year seven the lender recalculates the rate using an index plus a margin, and adjustments are constrained by contractual caps to limit increases. A 7/6 ARM can benefit buyers who plan to move or refinance before adjustments, but it exposes long-term holders to interest-rate and payment volatility after the fixed term.
Read at Redfin | Real Estate Tips for Home Buying, Selling & More
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