ARM vs Fixed Rate Calculator

This ARM vs fixed rate calculator shows both sides of an adjustable-rate mortgage. First, how much you save while the ARM’s starting rate is locked. Second, how much your payment could jump when that period ends. Seeing the reset payment next to the fixed payment helps you decide whether the early savings are worth the risk.

How to use this calculator

Get a fixed-rate quote and an ARM quote for the same loan amount and term, then test several reset rates.

• Fixed rate and ARM starting rate. Use quotes if you have them, or example rates.
• ARM fixed period. A “5-year ARM” keeps its starting rate for 5 years. Freddie Mac says initial periods range from six months to 10 years, with 3, 5 and 7 years most common.
• Rate after reset. This is a what-if. Run it at least twice: once at the starting rate plus the first adjustment cap, and once at the starting rate plus the lifetime cap.

How it is calculated

Each payment uses the standard formula M = P × r(1+r)^n / ((1+r)^n − 1), with r as the monthly rate and n as the number of payments.

1. Fixed payment = M on the loan at the fixed rate for the full term.
2. ARM starting payment = M on the loan at the ARM starting rate for the full term.
3. Balance at reset = what is left after the fixed-period payments at the starting rate.
4. Reset payment = M on that balance at the reset rate for the years remaining.
5. Intro savings = (fixed payment − ARM starting payment) × months in the fixed period.
6. Payment shock = reset payment − ARM starting payment, also shown as a percent.

Assumptions: one reset that lasts for the rest of the loan, no later adjustments, no payment caps or negative amortization, and principal and interest only.

Worked example

The same ARM with different reset rates:

With a 7-year fixed period instead, the ARM saves about $13,036 before reset, and a 7.5% reset rate raises the payment by about $307.

What your result means

An ARM wins if you sell or refinance before the reset, or if rates stay low. It loses if you keep the loan and the rate climbs. The worst-case row is the one to take seriously: could you pay it?

Rules that change the answer:

• Rate caps. The CFPB says common first-adjustment caps are 2 or 5 points, later caps 1 or 2 points, and the lifetime cap is most often 5 points. Two ARMs with the same starting rate can have different caps.
• Index and margin. The CFPB explains your new rate is an index plus the lender’s margin, within caps. Payments may not fall much even if rates drop.
• Adjustment frequency. Freddie Mac’s example: a 3/1 ARM is fixed for three years and then can change once a year. Ask how often your loan adjusts.
• Prepayment penalty. Freddie Mac warns some ARMs charge a penalty for paying off early. The CFPB says to ask for a quote without one.

Common mistakes

• Testing only a small reset and ignoring the lifetime cap.
• Counting on refinancing before the reset. Home values and finances can change.
• Comparing an ARM and a fixed loan with different terms or loan amounts.
• Ignoring how often the rate adjusts after the first reset.
• Focusing on intro savings without comparing them with the possible yearly cost after reset.

Related guides and tools

Read should you buy mortgage points to compare another way to lower your starting rate, when to refinance your mortgage before planning an exit from an ARM, and how much house you can afford to size a payment you can sustain.

Then compare points with the mortgage points calculator, compare fixed terms with the 15 vs 30 year mortgage calculator, or check a future refinance with the refinance break-even calculator.