A 7-1 ARM is a 30-year loan with the rate fixed for the first seven years, then adjusting once a year after that. The '7' is the fixed period in years; the '1' is how often the rate adjusts once the fixed period ends. You make a regular principal-and-interest payment the whole time, so the balance is going down from day one. The reason to consider one: the fixed period usually carries a lower rate than a 30-year fixed. You accept rate risk in year eight and beyond in exchange for a cheaper rate up front. That trade can make sense if you have a solid reason to believe you will move or refinance inside seven years. It works against you if you are still holding the loan when the adjustments begin in a higher-rate environment, and nobody can promise a refinance window opens in time. So apply our test: only take the discount if you could live with the worst-case adjusted payment. Whether the discount is big enough to justify the risk depends on your time horizon and how much lower the ARM rate actually is, which is worth modeling before you choose.