1. What is a 7/6 ARM Mortgage?

A 7/6 ARM (Adjustable Rate Mortgage) has a fixed interest rate for the first 7 years, then adjusts every 6 months thereafter. The initial rate is typically lower than fixed-rate mortgages, making it attractive for those planning to sell or refinance before the adjustment period.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula:

Where:

• \( P \) — Loan principal amount
• \( r \) — Monthly interest rate (annual rate / 12)
• \( n \) — Number of payments (loan term in years × 12)

Explanation: The calculator computes payments for both the initial 7-year fixed period and the subsequent adjustable period.

3. Understanding ARM Mortgages

Details: ARMs typically have rate caps that limit how much the interest rate can increase both per adjustment period and over the life of the loan. Understanding these caps is crucial when considering an ARM.

4. Using the Calculator

Tips: Enter the loan amount, initial interest rate (for first 7 years), adjusted rate (after 7 years), and total loan term. The calculator will show payments for both periods.

5. Frequently Asked Questions (FAQ)

Q1: What does 7/6 mean in a 7/6 ARM?
A: The first number (7) is the initial fixed-rate period in years. The second number (6) means the rate adjusts every 6 months after the initial period.

Q2: Are there caps on rate adjustments?
A: Yes, most ARMs have periodic adjustment caps (e.g., 2% per adjustment) and lifetime caps (e.g., 5% over initial rate).

Q3: Who should consider a 7/6 ARM?
A: Borrowers who plan to sell or refinance within 7 years may benefit from the lower initial rate.

Q4: What happens if rates rise significantly?
A: Your payments could increase substantially after the initial period, so it's important to understand the maximum possible payment.

Q5: Can I refinance an ARM?
A: Yes, you can refinance to another ARM or a fixed-rate mortgage if rates are favorable and you qualify.