Sometimes referred to as the "7/1", the 7-Year Fixed Rate Loan is a mortgage where the interest rate is fixed for 7 years. After the 7-year fixed period, the interest rate adjusts, usually once a year, for the rest of the loan term. Most 7 Years Fixed Hybrids are amortized for 30 years. That is, payments are calculated so the home loan is paid off in 30 years.
Statistics have shown that Americans keep their home loans on average for less than 7 years. For younger homeowners who plan to "trade up" their homes. A Hybrid mortgage with a 7-year Fixed Rate period, which usually have a lower initial interest rate than the 15-year Fixed and the 30-year Fixed, may be a better loan option.
Even though a Hybrid offers you the security of a fixed rate mortgage, it also allows for multiple payment options like a traditional Option ARM.
The interest rate offered for this type of ARM is usually lower with a shorter fixed term. So a 7/1 ARM will have a higher interest rate than a 3/1 ARM.
Sometimes the rate differences between these hybrid type mortgages and fixed rate mortgage are so minimal that it may make more sense to obtain a fixed rate mortgage. So make sure that you ask about what all of your rate and program options are up front.
An increasingly competive option to the 7 year fixed or 7 year ARM mortgage is the 30 year fixed rate mortgage. 30 year fixed rate mortgages are currently priced very aggressively, often times at lower rates than 7 year Adjustable rate mortgages.
Under normal interest rate climate, the interest rate of a 7-year fixed rate hybrid is usually lower than that of a 30-year fixed rate mortgage. The "7/1 ARM" is designed for homeowners who do not intend to keep their mortgages for more than seven years to take advantage of the lower interest rates during the initial seven years.
In additon to 7/1 ARMS, there are also hybrid ARMS with different fixed terms, including 3/1 and 5/1.