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ARM vs Fixed-Rate Calculator

Compare an adjustable-rate mortgage against a fixed-rate loan side by side — see your initial payment, the worst-case payment once the caps are applied, and how the rate could move year by year.

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years

Fixed for the first 5 years, then adjusts every 1 year(s). Caps: 2 / 2 / 5 points (first adjustment / each later adjustment / lifetime).

%
%

Your own 'what if' assumption about where rates could be when the fixed period ends — not a forecast. The calculator caps this to whatever the ARM's rules actually allow.

%
Initial ARM payment (yrs 1-5)$2,271.16
Fixed-rate payment$2,528.27
Worst-case ARM payment$2,955.96
Max lifetime rate7.50%

The worst-case payment assumes your rate jumps by the maximum the caps allow at the very first adjustment and stays there — it is a upper-bound stress test, not a prediction.

ARM rate & payment by year (vs. your assumption)

Projected ARM rate and monthly payment by year
YearRateMonthly payment
15.50%$2,271
25.50%$2,271
35.50%$2,271
45.50%$2,271
55.50%$2,271
67.50%$2,733
77.50%$2,733
87.50%$2,733
97.50%$2,733
107.50%$2,733
117.50%$2,733
127.50%$2,733
137.50%$2,733
147.50%$2,733
157.50%$2,733

How this calculator works

An adjustable-rate mortgage (ARM) is named by two numbers, such as a 5/1 ARM: the rate is fixed for the first 5 years, then adjusts every 1 year for the rest of the term. During the initial fixed period, your payment fully amortizes the loan at the start rate using the standard formula:

M = P × r × (1+r)n ÷ ((1+r)n − 1)

At each adjustment date, the new rate moves toward wherever the index (plus the lender's margin) happens to be — but it is always bounded by the ARM's caps, typically written as three numbers such as 2/2/5: the initial cap (maximum move at the first adjustment), the periodic cap(maximum move at each adjustment after that), and the lifetime cap (maximum total rise over the entire loan versus your starting rate). After each adjustment, the payment is recalculated to fully pay off the remaining balance over the remaining term at the new rate — which is how real ARMs reset payments, not by simply scaling the old payment.

Worked example

Take a $400,000, 30-year 5/1 ARM starting at 5.5%, with typical 2/2/5 caps, compared against a 6.5% 30-year fixed loan. For the first 5 years, the ARM's monthly payment is $2,271.16 — noticeably below the fixed loan's $2,528.27. If you assume rates land around 7.5% by year 6 (a 2-point jump, right at the initial cap), the ARM's payment adjusts up to$2,733.10 from year 6 onward — now above the fixed payment. This calculator's worst-case figure, which stress-tests the maximum jump the initial cap allows applied to the original loan amount, comes out to $2,955.96 a month, with a maximum lifetime rate of 7.5% in this scenario (still well inside the 5-point lifetime cap, which would allow up to 10.5%).

What affects your result

  • The ARM product you choose — a 5/1 ARM adjusts sooner than a 7/1 or 10/1, but often starts with a lower initial rate.
  • Your rate assumption after adjustment — this is a scenario you control, not a forecast; try a few different assumptions to see the range of outcomes.
  • The cap structure — tighter caps limit your downside risk even if rates rise sharply.
  • How long you'll keep the loan — if you'll sell or refinance before the first adjustment, the ARM's initial rate is the only rate that matters to you.

A note on accuracy

This calculator models the actual mechanics of an ARM reset: recalculating the payment against the remaining balance and remaining term at each adjustment, bounded by the product's initial, periodic, and lifetime caps. The "assumed rate after adjustment" is your own planning scenario, not a market prediction. For consumer guidance on ARMs and rate caps, see theConsumer Financial Protection Bureau.

Frequently asked questions

Should I get an ARM or a fixed rate?

It depends on your rate today, how long you'll keep the loan, and your tolerance for payment uncertainty. An ARM typically starts with a lower rate than a comparable fixed loan, which can save money in the early years or if you plan to sell or refinance before the fixed period ends. A fixed rate never changes, so it's the safer choice if you plan to stay in the home long-term or want a predictable payment. Use the calculator above to compare your specific initial ARM payment, worst-case ARM payment, and fixed payment side by side.

What do the numbers in "5/1 ARM" or "7/1 ARM" mean?

The first number is how many years your rate is fixed at the start (5 or 7 years); the second number is how often it can adjust after that (every 1 year). So a 5/1 ARM has a fixed rate for 5 years, then the rate can move once a year for the rest of the term. A 7/1 and 10/1 ARM work the same way with longer initial fixed periods.

How much can an ARM rate go up?

ARMs are protected by rate caps, usually written as three numbers (e.g. 2/2/5): the initial cap limits how much the rate can jump at the very first adjustment, the periodic cap limits the jump at every adjustment after that, and the lifetime cap limits the total rise over the entire loan versus your starting rate. For example, with 2/2/5 caps and a 5.5% start rate, your rate could never exceed 10.5% (5.5% + 5), no matter how high market rates rise.

ARM vs fixed rate mortgage comparison — which saves more money?

In the early years, the ARM almost always has the lower payment, since it starts below the comparable fixed rate. Whether it stays cheaper over the full loan depends entirely on what happens to rates at your adjustment dates — something nobody can predict with certainty. This calculator lets you test a 'what if' assumption for the rate after adjustment so you can see both the initial saving and the worst-case downside before deciding.

Can my ARM payment go down after it adjusts?

Yes — if the index your ARM is tied to falls before your adjustment date, your new rate (and payment) could adjust downward, subject to the same periodic and lifetime caps. This calculator focuses on the more commonly modeled upward scenario, since that is the risk most buyers want to understand before choosing an ARM.

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