After that initial period, both adjustable-rate mortgages can adjust once per year. Neither keeps its original rate for the full mortgage term.
If you expect to pay off the loan within five years, the extra fixed period on a 7/1 may never affect you. If you expect to keep the mortgage into years six or seven, those additional fixed years become more relevant.
5/1 ARM vs. 7/1 ARM Basics
| Feature |
5/1 ARM |
7/1 ARM |
| Initial fixed period |
5 years |
7 years |
| Adjustment frequency afterward |
Once per year |
Once per year |
| When adjustment risk begins |
After the initial 5-year period |
After the initial 7-year period |
| Index |
Depends on the loan program |
Depends on the loan program |
| Margin |
Set by the loan terms |
Set by the loan terms |
| Rate caps |
Depend on the specific ARM |
Depend on the specific ARM |
| Main tradeoff |
Earlier adjustment risk |
Two additional fixed years |
The numbers in an ARM name describe its timing. The first number tells you how long the initial fixed period lasts. The second tells you how frequently the rate can change afterward.
That makes 5/1 and 7/1 ARMs structurally similar. The biggest difference is when the adjustable period begins.
How a 5/1 ARM Works
A 5/1 ARM starts with five years at its initial interest rate.
Once that period ends, the rate can adjust annually according to the terms of the mortgage.
ARM adjustments generally use an index plus a margin. The Consumer Financial Protection Bureau explains that the index changes with market conditions, while the margin is established in the loan agreement and generally remains unchanged after closing.
Rate caps can limit how much the interest rate changes at the first adjustment, at later adjustments and over the life of the mortgage.
The term “5/1” does not tell you the index, margin or cap structure. Those details have to be checked in the actual loan terms.
How a 7/1 ARM Works
A 7/1 ARM follows the same basic structure but keeps its initial rate for seven years.
Annual adjustments can begin after that period ends.
The extra two years delay your exposure to rate changes. During years six and seven, a 5/1 could already be adjusting while a 7/1 remains at its original rate.
That additional protection can have value, but only if you still have the mortgage during those years.
What Do Two Extra Fixed Years Cost?
There is no standard rate difference between a 5/1 and 7/1 ARM.
The spread can change with lender pricing, market conditions, loan size and borrower characteristics. Compare actual quotes made at roughly the same time.
Example: Comparing Two $400,000 Loans
Assume you receive these hypothetical 30-year ARM quotes:
| Loan |
Initial Rate |
Approximate Monthly Principal and Interest |
| 5/1 ARM |
6.125% |
$2,430 |
| 7/1 ARM |
6.25% |
$2,463 |
The 7/1 costs about $32 more per month during the initial five years.
Over 60 scheduled payments, that is roughly $1,946 more in principal-and-interest payments.
In exchange, the 7/1 keeps its original rate for two years after the 5/1 becomes adjustable.
If you sell or refinance before the five-year fixed period ends, those two additional fixed years would never affect your mortgage.
The rates in this example are hypothetical. The actual difference between 5/1 and 7/1 pricing can be smaller, larger or nonexistent.
What Happens When the Rate Starts Adjusting?
Once the initial fixed period ends, the rate generally reflects the applicable index plus the mortgage's margin, subject to its caps.
For example, if the index is 5% and your margin is 2.5 percentage points, the fully indexed rate would be 7.5% before applying any caps or other contractual limits.
If your previous rate was 6% and the first-adjustment cap allowed an increase of only 1 percentage point, the rate could not immediately rise to 7.5%. The cap would limit that first change.
The same principle applies when rates decline. Some ARMs also include floors or other limits on decreases.
Rate Caps Matter as Much as the Fixed Period
The CFPB identifies three main ARM caps:
- An initial adjustment cap limits the first rate change after the fixed period.
- A subsequent adjustment cap limits later changes.
- A lifetime cap limits how far the rate can move over the life of the mortgage.
A common cap structure does not make it a universal rule. Two 5/1 ARMs can have different caps, as can two 7/1 ARMs.
You should therefore compare more than the initial rate when evaluating two quotes.
Example: A First Adjustment
Assume the hypothetical $400,000 5/1 ARM starts at 6.125% and has a first-adjustment cap of 2 percentage points.
The initial principal-and-interest payment is about $2,430 per month.
After five years of scheduled payments, the remaining balance would be about $372,788.
If the rate increased by the full 2 percentage points to 8.125%, the payment would rise to about $2,908 based on the remaining balance and remaining 25-year term.
That is an increase of about $478 per month.
This example shows what the cap could permit. It does not predict that the rate will rise by the maximum amount.
5/1 and 7/1 ARMs Are Not the Only Structures
Annual adjustments are only one ARM structure.
For example, a 5/6 ARM keeps its initial rate for about five years and can then adjust every six months.
Current standard Fannie Mae conventional ARM plans use SOFR-based structures such as 5/6, 7/6 and 10/6 rather than 5/1 and 7/1 conventional plans.
Fannie Mae's current ARM guidance requires its standard ARM plans to use the 30-day average Secured Overnight Financing Rate, or SOFR.
Annual-adjustment structures still exist in other mortgage programs. FHA, for example, permits both 5-year and 7-year hybrid ARMs that adjust annually after their initial periods.
HUD's FHA program information states that FHA's 7-year ARM can adjust by up to 2 percentage points annually, with a maximum increase of 6 percentage points from the initial rate over the life of the mortgage.
Availability therefore depends on the loan program and lender.
When Does the 5/1 Have an Advantage?
The 5/1 deserves a closer look when you expect the mortgage to be paid off before or near the end of the initial five-year period and it provides better pricing than the 7/1.
For example, a known relocation or planned home sale may make years six and seven less relevant.
The key is to quantify the savings.
If the 5/1 saves only a small amount, accepting earlier adjustment risk may provide little benefit. If the savings are larger and your timeline is relatively firm, the comparison can look different.
When Does the 7/1 Have an Advantage?
The 7/1 gives you two additional years before the first possible adjustment.
That matters most when you expect to keep the mortgage longer than five years but may not keep it much beyond seven.
It can also reduce uncertainty if your timeline is less predictable.
The tradeoff is whatever additional cost comes with the longer fixed period. There is no rule that a 7/1 must have a higher initial rate than a 5/1, so use actual quotes rather than assuming a premium.
Compare Both With a Fixed-Rate Mortgage
A 5/1 versus 7/1 ARM comparison should also include a fixed-rate option.
| Feature |
5/1 ARM |
7/1 ARM |
30-Year Fixed |
| Initial fixed period |
5 years |
7 years |
Full term |
| Later rate adjustments |
Annual |
Annual |
None |
| Initial rate |
Varies |
Varies |
Varies |
| Future interest-rate uncertainty |
Begins sooner |
Begins later |
None |
An ARM does not automatically carry a lower initial rate than a fixed mortgage.
If the pricing is close, calculate the actual dollar difference before accepting future adjustment risk.
An adjustable- versus fixed-rate mortgage comparison should use the same loan amount, points or lender credits and quote date.
Plan for the End of the Fixed Period
Before choosing an ARM, consider what happens if you still have the mortgage when adjustments begin.
There are three basic possibilities:
- Keep the ARM and make the adjusted payment.
- Refinance into another mortgage if you qualify.
- Sell the property and pay off the loan.
Refinancing from an ARM to a fixed-rate mortgage can eliminate future adjustment risk, but a refinance depends on future rates, equity, income, credit and available loan programs.
Do not assume refinancing will automatically be available before the first adjustment.
5/1 ARM vs. 7/1 ARM by Expected Timeline
| Expected Time With the Mortgage |
What to Compare |
| Less than 5 years |
Initial rate, points, fees and total savings before either loan adjusts |
| 5 to 7 years |
The cost of the 7/1's two extra fixed years versus the 5/1's adjustment risk |
| More than 7 years |
Rate caps, potential future payments and fixed-rate alternatives |
| Uncertain |
The value of two additional fixed years and your ability to handle higher payments |
Your expected timeline does not determine the answer on its own. The initial rate, points, fees, index, margin and caps all affect the comparison.
Run Both ARM Scenarios
An ARM calculator can help compare the starting payment with potential future payments.
Use the actual terms from each quote, including the initial rate, index, margin, first adjustment date and rate caps.
An ARM risk calculator can also help show how the loan behaves if rates rise after the fixed period.
Compare Quotes at the Same Time
Mortgage pricing can change quickly, so compare the 5/1, 7/1 and fixed-rate alternatives using quotes from approximately the same time.
Use the same loan amount, lock period and point or lender-credit structure.
The same approach applies when comparing mortgage rates between lenders.
Other ARM Comparisons
A 5/1 vs. 10/1 ARM creates a wider difference in initial fixed-rate protection.
A 7/1 vs. 10/1 ARM compares two longer fixed periods.
For six-month adjustment structures, compare a 5/6 vs. 7/6 ARM.
A 5/1 vs. 5/6 ARM keeps the initial five-year period similar and focuses on annual versus six-month adjustments.
Bottom Line
A 5/1 ARM and 7/1 ARM both can adjust annually, but the 7/1 keeps its initial rate for two additional years.
If you expect to pay off the mortgage before year five, compare whether the 5/1 provides meaningful savings. If you expect to keep the mortgage through years six or seven, the 7/1's additional fixed period becomes more valuable.
Whichever structure you compare, look beyond the initial rate. The index, margin and caps determine how the mortgage can behave once adjustments begin.
FAQ
Is a 5/1 ARM Better Than a 7/1 ARM?
Neither is universally better. A 5/1 may provide different initial pricing but reaches its adjustable period two years sooner. A 7/1 keeps its original rate longer. Compare the rates, points, fees, caps and how long you expect to keep the mortgage.
What Happens After the Fixed Period on a 5/1 ARM Ends?
A true 5/1 ARM can begin adjusting once per year after its initial five-year period. The new rate generally reflects the loan's index plus its margin, subject to the applicable rate caps. Your payment is then recalculated using the new rate, remaining balance and remaining term.
How Much Lower Is a 7/1 ARM Rate Than a 30-Year Fixed?
There is no standard difference. A 7/1 ARM may have a lower initial rate, similar pricing or little advantage compared with a 30-year fixed depending on market conditions and lender pricing. Compare quotes made at the same time using the same points and loan assumptions.
Can You Refinance Out of an ARM Before It Adjusts?
Yes, if you qualify for another mortgage. Refinancing before the first adjustment can remove future ARM risk, but future rates and eligibility are unknown. Your equity, income, credit, property value, closing costs and available loan programs can all affect whether refinancing makes sense.
What Are the Caps on a 7/1 ARM?
Caps depend on the loan program. There is no universal cap structure for every 7/1 ARM. FHA's 7-year ARM, for example, allows annual changes of up to 2 percentage points and a lifetime increase of up to 6 percentage points from the initial rate.
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