This is a graph of combined average initial interest rates for 7/1-year Hybrid Adjustable Rate Mortgages over the last six months, derived from data gathered as part of HSH's editorial surveys. The weekly 7/1 Hybrid ARM data that populates this graph of average rates can be seen in HSH's Statistical Release.
The 7/1 ARM has a fixed interest rate for the first seven years of the loan, which is usually a total of 30 years. After the first seven years, the interest rate adjusts each year for the remaining 23-year term.
Seven-one hybrid ARMs appeal to both homeowners looking to refinance and homebuyers who would like a fixed-rate mortgage but don't have a long-term time frame. The fixed-period interest rate on 7/1 ARM is usually lower when compared against fixed-rate counterparts.
As many mortgages are paid off or refinanced before they get past the seven-year mark, these can be all the fixed-rate mortgage a homebuyer or homeowner ever needs. However, as with other longer-term hybrid ARMs, the most common cap structures for these ARMs allow for the interest rate to rise as much as six percentage points after the initial period ends, so there are some risks if the borrower's time frame has lengthened beyond the fixed period.
HSH's combined averages give a realistic picture of local mortgage markets, particularly important in high-cost areas.