7/1 ARM

These are loans that are amortized over a 30 year period and carry a fixed rate for the first 5 or 7 years. The interest will adjust to market rate after the initial fixed period and there are limits to the adjustment of interest rate. Many variants are available.

These are loans that are very advantageous for the initial term but can be dangerous in the future years as the rate and, therefore, the payments can increase and put a strain on the budget. Can be effectively used as a bridge loan for those that will sell or look to refinance within the term period.