Calculate adjustable-rate mortgage payments for fixed and adjusted periods. Compare ARM vs fixed-rate scenarios with rate caps and payment projections.
An adjustable-rate mortgage (ARM) offers a lower interest rate during an initial fixed period, then adjusts periodically based on a market index. Common structures include 5/1, 7/1, and 10/1 ARMs, where the first number is the fixed period in years and the second is how often the rate adjusts after that.
ARMs can save money if you plan to sell or refinance before the fixed period ends. However, they carry risk — if rates rise significantly, your payment could jump substantially when the adjustment kicks in. Rate caps limit how much the rate can increase per adjustment and over the loan's lifetime, providing some protection.
This calculator models both the fixed and adjustable periods, showing your payment before and after adjustment. It includes scenario analysis for best-case, expected, and worst-case outcomes, helping you evaluate whether the lower initial rate justifies the adjustment risk. Compare ARM total interest against a fixed-rate alternative to make an informed decision.
ARMs are complex products where the initial savings may or may not outweigh the risk of higher future payments. This calculator quantifies both sides — showing exactly how much you save during the fixed period and how much more you could pay after adjustment. That clarity helps you decide if an ARM fits your timeline and risk tolerance.
Fixed-period payment: M = P × [r₁(1+r₁)^N] / [(1+r₁)^N − 1] where r₁ = fixed monthly rate, N = total months. Balance at adjustment: computed by running the amortization. Adjusted payment: M₂ = B × [r₂(1+r₂)^n₂] / [(1+r₂)^n₂ − 1] where B = remaining balance, r₂ = adjusted monthly rate, n₂ = remaining months.
Result: Fixed: $2,271/mo → Adjusted: $2,780/mo — +$509/mo (+22.4%) payment increase
A $400,000 5/1 ARM at 5.5% has a payment of $2,271 for the first 5 years. When the rate adjusts to 8.0%, the payment jumps to $2,780 — a $509 monthly increase. Over 30 years, total interest is approximately $496,000, compared to $417,000 if you had locked in 5.5% fixed.
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The 5 means the rate is fixed for 5 years. The 1 means it adjusts once per year after that. Common variants include 3/1, 7/1, and 10/1 ARMs. The longer the fixed period, the higher the initial rate (but still below fixed-rate equivalents).
ARM rates are tied to an index (like SOFR or Treasury rates) plus a margin (typically 2–3%). At each adjustment, the new rate = current index value + margin, subject to rate caps.
Rate caps limit how much your rate can change. The initial cap limits the first adjustment (often 2%). The periodic cap limits subsequent adjustments (often 2%). The lifetime cap limits total increase over the loan's life (often 5-6% above the initial rate).
Yes. If the index rate drops, your payment can decrease at the next adjustment date, subject to a floor (minimum) rate. However, rates tend to be low when ARMs originate, so increases are more common than decreases.
ARMs are advantageous when you plan to move or refinance before the fixed period ends, when current fixed rates are significantly higher, or when you expect rates to fall. If you plan to stay in the home long-term, a fixed rate provides certainty.
Payment shock is the sudden increase in monthly payment when an ARM adjusts. A $400K ARM going from 5.5% to 8% can see payments jump $500+/month. Lenders sometimes qualify ARM borrowers at a higher rate to ensure they can handle potential increases.