When shopping for a mortgage, you’re likely to come across a variety of loan terms, fixed rate, variable rate, and hybrids like the 7/6 ARM. But what exactly does a “7/6 ARM” mean and how does it compare to a traditional 30-year fixed rate mortgage?
Whether you’re buying a home in Los Angeles, California, or settling down in Dallas, Texas, understanding how different mortgage structures work can help you make financial decisions with confidence. This Redfin article details how 7/6 ARM works, when it’s the right choice, and the pros and cons to consider before making your decision.
What does “7/6 ARM” mean?
The term “7/6 ARM” is categorized as follows:
‘7’ = Number of years the interest rate is fixed at the beginning of the loan. ‘6’ = How often the interest rate adjusts after the fixed period (in this case every 6 months).
This structure is part of a newer generation of ARMs that adjusts twice a year after an initial fixed period. For example, 7/1 ARM (previously common) was adjusted once a year, but most modern ARMs use the 7/6 format.
Example: If you take out a 30-year mortgage on a 7/6 ARM in 2025, your interest rate will remain the same from 2025 to 2032. From year 8 onwards, your lender will review and potentially adjust your interest rate every six months based on current market conditions.
>>Read: What is an adjustable rate mortgage?
7/6 How ARM works
Here’s a step-by-step look at the lifespan of a typical 7/6 ARM.
1. Fixed interest rate period (1st to 7th year)
Your interest rate and monthly payments are stable for the first seven years. Many borrowers choose ARMs because the initial interest rate is typically lower than a 30-year fixed loan, making monthly payments more affordable during this period.
2. Adjustment period (every 6 months after 7th year)
After the fixed period ends, the interest rate changes twice a year. Each adjustment is based on:
A benchmark index (often the Secured Overnight Financing Rate (SOFR)) plus a margin set by the lender (e.g. 2%)
New interest rate = index + margin, subject to interest rate caps.
3. Upper price limit
Lenders impose caps to protect borrowers from large price increases.
Initial adjustment cap: The maximum amount your rate can increase the first time (e.g. 2%) Subsequent adjustment cap: The maximum amount each subsequent adjustment can increase (e.g. 1%) Lifetime cap: The maximum total increase over the original rate (e.g. 5%)
7/6 Advantages of ARM
Lower initial interest rate: This often results in lower monthly payments during the fixed term. Financial potential: If you plan to sell or refinance within seven years, you’ll benefit from a lower initial interest rate without facing a potential adjustment. Flexibility: Ideal for buyers who don’t plan to live in their home for the full 30 years.
7/6 Disadvantages of ARM
Price Uncertainty: Once the fixed period ends, prices may increase and your monthly payments may increase. Budget Impact: If interest rates rise sharply, your adjusted payments could increase significantly. Refinance Risk: If home prices decline or credit conditions become tight, refinancing from an ARM may not be easy or cheap.
7/6 When ARM makes sense
7/6 ARM is a smart choice if:
You plan to move or refinance within the next seven years. The expectation is that your income will increase over time, making it easier to manage future payment increases. You want to reduce your payments now and free up cash for other priorities like renovations and investments.
On the other hand, if you plan to live in your home for a long time, a fixed-rate mortgage may offer more stability and predictability.
7/6 ARM vs. 30 Year Fixed Mortgage
Features 7/6 ARM 30-Year Fixed Mortgage Initial Interest Rate Low High Interest Rate Stability Fixed for 7 years, then adjusted every six months Fixed for the entire loan term Ideal for short- to medium-term homeowners Long-term homeowners Monthly payments (initial) Typically low Typically high Long-term predictability Low High
7/6 Variable rate home loan qualification
Eligibility requirements for a 7/6 ARM are similar to those for a fixed-rate mortgage, but lenders may have more stringent criteria because ARMs involve more risk when interest rates adjust. Lenders typically consider the following:
credit score
Many lenders prefer a credit score of 620 or higher, but a score of 700 or higher may help you secure the most competitive interest rate. Because ARMs have payments that change over time, lenders often prioritize borrowers with strong credit histories.
down payment
Traditional ARMs typically require at least a 5% down payment, but some lenders may require a down payment of 10% or more, depending on the loan amount, property type, and financial situation. The higher your down payment, the easier it is to qualify and potentially lower interest rates.
Debt-to-income (DTI) ratio
Lenders typically want your total monthly debt, including the expected ARM payment after the initial lock-in period, to stay less than 43% of your gross monthly income. Some lenders may allow higher DTIs for eligible borrowers.
>>Read: How to get out of debt and buy a home
Proof of income and employment
Stable income and employment are important. Lenders typically look at your recent pay stubs, W-2 or tax returns, and bank statements to make sure you can afford the loan, with current and future interest rates adjusted.
>>Read: Can I get a mortgage with my new job?
Loan amount and property type
The screening criteria differ depending on whether the loan amount is conforming or jumbo, and whether the property is a primary residence, second home, or investment property. Jumbo ARMs typically require a higher credit score, a larger down payment, and more documentation.
Some borrowers may also need to prove they can afford the loan at the fully indexed rate, not just the initial teaser rate. This ensures that you will still qualify if interest rates increase after the fixed period ends.
>>Read: Types of home loans
7/6 ARM FAQ
1. How often does the interest rate change on a 7/6 ARM?
After a fixed period of 7 years, the interest rate changes every six months.
2. Can my monthly payment be reduced?
yes. If the benchmark index declines, your interest rate, and therefore your payments, may decrease during the adjustment period.
3. Are there limits to interest rate increases?
yes. An interest rate cap limits the amount that your interest rate can increase at each adjustment and over the life of the loan, providing some protection against sudden spikes.
4. Is a 7/6 ARM better than a fixed rate loan?
It depends on your goals and risk tolerance. While a 7/6 ARM may save you money initially, a fixed loan is more stable for long-term homeowners.
