How to use the ARM calculator
- 1 Enter the loan amount, the term and the starting rate.
- 2 Choose the fixed period: 3, 5, 7 or 10 years.
- 3 Enter the fully indexed rate and the initial, yearly and lifetime caps from your Loan Estimate.
- 4 Enter a fixed rate to compare and read the payments.
Worked example
A $400,000, 30-year 5/1 ARM at 6% with 2/1/5 caps and an 8% fully indexed rate. The payment is $2,398.20 for 5 years, $130 a month less than a 6.5% fixed loan ($2,528.27), saving $7,804 in the fixed period. At the first reset the rate can rise to 8% and the payment to $2,872.83. At the 11% lifetime cap it could reach $3,611.23.
Choosing an ARM safely
- Make sure you can afford the worst case at the lifetime cap.
- Read the caps and margin on your Loan Estimate.
- Plan for the first reset: sell, refinance or budget for it.
- Compare with a fixed rate over the years you will stay.
Compare a fixed loan with the Mortgage Calculator, plan a refinance with the Refinance Calculator, and see the full schedule with the Amortization Calculator.
Features
Three scenarios
The start payment, the payment if rates stay at the indexed rate, and the worst case.
Caps applied
Initial, yearly and lifetime caps as on your Loan Estimate.
Fixed-rate comparison
How much the ARM saves in the fixed period, and what it could cost later.
When to use it
Planning to move soon
If you sell before the reset, an ARM's lower rate can save money. See proceeds with the Home Sale Proceeds Calculator.
Comparing loans
Check the fixed-rate payment with the Mortgage Calculator.
Refinancing later
See whether refinancing before the reset pays with the Refinance Calculator.
Checking affordability
Make sure you can afford the worst case with the Debt-to-Income Calculator.
Related Home and Auto tasks
Frequently asked questions
What is an ARM?
An adjustable-rate mortgage has a fixed rate for an initial period, then the rate resets regularly based on a market index, such as SOFR, plus a fixed margin set by the lender.
What does 5/1 ARM mean?
The rate is fixed for 5 years, then adjusts once a year. A 5/6 ARM adjusts every six months after the fixed period, which many lenders now use with SOFR.
What are ARM caps?
Limits on rate changes. A 2/1/5 cap structure means the rate can rise at most 2 points at the first reset, 1 point at each later reset and 5 points above the starting rate over the life of the loan.
What is the fully indexed rate?
The index plus the margin: the rate the loan would reset to if the caps did not limit it. If SOFR is 4% and the margin is 2.75%, the fully indexed rate is 6.75%.
Can an ARM payment go down?
Yes. If the index falls, the rate can fall at a reset, usually limited by the same caps and by a floor, often the margin.
When is an ARM a good idea?
When you expect to sell or refinance before the first reset, when ARM rates are well below fixed rates, or when you can comfortably afford the worst-case payment.
What are the risks of an ARM?
Payments can rise sharply at a reset. In the example, the payment rises from $2,398 to $2,873 at the first reset and could reach $3,611 at the lifetime cap.
How do I qualify for an ARM?
For ARMs with fixed periods of five years or less, lenders usually qualify you at the higher of the fully indexed rate or the start rate plus 2 points, so you can afford a reset.
Can I refinance an ARM into a fixed rate?
Yes, at any time, subject to qualifying and closing costs. Many borrowers plan to refinance before the first reset, but rates may be higher then.
Does this include taxes and insurance?
No. It shows principal and interest only. Add property tax, insurance and any PMI for the full monthly cost.
Results are estimates based on the official rates linked above. Confirm important figures with the issuing authority or a qualified adviser before you act on them.
Built and reviewed by Hamza Farooq, founder and lead developer
· Last updated
· How we check our tools
· Report a problem