ARM vs Fixed Mortgage Calculator
ARM vs fixed mortgage calculator. Compare 5/1, 7/1, 10/1 ARMs to a 30-year fixed across hold periods. Total cost, breakeven, payment-shock + worst-case rate analysis.
ARM vs Fixed Mortgage Calculator
Side-by-side comparison
| Metric | Fixed | ARM |
|---|---|---|
| Monthly P&I (initial) | — | — |
| Monthly P&I (after reset) | (same) | — |
| Total payments over hold | — | — |
| Total interest over hold | — | — |
| Remaining balance at hold end | — | — |
How to use the ARM vs fixed calculator
Enter loan amount + total term + your hold
Loan amount: principal at origination. Total term: usually 30 years for both ARM and fixed. Hold period: how long you plan to keep the loan before selling or refinancing. ARM math is dominated by this. If you'll sell BEFORE the ARM resets, ARM strictly wins.
Enter the fixed rate
The 30-year fixed rate your lender has actually quoted you, from the Loan Estimate. The tool amortises it over the full term and reads off the balance and total interest at the end of your hold.
Enter ARM initial rate + fixed period
The introductory rate from the ARM Loan Estimate and the length of the fixed period. 5/1, 7/1, 10/1 ARMs are fixed for 5, 7 or 10 years, then adjust annually; a 5/6 adjusts every six months after year five. The tool models one reset at the end of the fixed period and holds the reset rate thereafter.
Enter your expected reset rate
This is the speculative part. Conservative: assume the reset lands at today's fixed rate. Pessimistic: use the lifetime cap printed in your note — the CFPB's ARM handbook shows where to find it on the Loan Estimate. Realistic: somewhere in between. The reset rate is YOUR forecast — the calculator doesn't predict it.
Read the verdict
Three outcomes: (1) STRONG ARM — you'll sell/refinance before reset. ARM almost certainly wins. (2) ARM still wins — savings during initial period exceed the higher payments after reset. (3) Fixed wins — reset rate is high enough that ARM costs more overall. Run multiple scenarios with different reset rates to stress-test.
ARM vs fixed — the rate bet most homeowners get wrong
Adjustable-rate mortgages (ARMs) offer a lower initial interest rate than fixed-rate mortgages for a defined period (typically 5, 7, or 10 years), then reset periodically to a reference index plus a margin — for new agency ARMs the index is the 30-day average SOFR published by the Federal Reserve Bank of New York; the older USD LIBOR settings ceased in June 2023. The deal: pay a lower rate now in exchange for taking interest-rate risk later. ARMs got a bad reputation during the 2008 housing crisis; since January 2014 the Ability-to-Repay rule (Regulation Z, 12 CFR 1026.43) has required lenders to qualify ARM borrowers at the fully indexed rate or the introductory rate, whichever is greater. For the right borrower with the right hold horizon, an ARM can save tens of thousands of dollars. For the wrong borrower, it's a recipe for payment shock and financial distress.
The math
If your initial ARM rate is 6.5% vs 30-year fixed at 7.25%, you save ~0.75% annually during the initial fixed period. On a $400K loan, that's ~$200/month, $2,400/year, $16,800 over 7 years (a 7/1 ARM). If you sell or refinance BEFORE year 7, those savings are locked in — ARM strictly wins. If you hold longer, the math depends on what happens at reset. Every ARM plan Fannie Mae buys must carry lifetime and per-adjustment caps. Cap notation such as 2/2/5 reads: at most 2 points at the first reset, 2 points at each later reset, 5 points over the life of the loan — so a 6.5% start under those caps can never exceed 11.5%. Read your own note; plans differ. The reset rate itself is index + margin, rounded to the nearest one-eighth of a percent, and Fannie Mae limits the margin to 300 basis points on the ARMs it purchases.
ARM economics are dominated by ONE question: will you sell or refinance before reset? Answer "yes" with high confidence → ARM almost always wins. Answer "uncertain" → reset risk usually kills the ARM math.
When ARMs make sense
Three classic ARM-friendly scenarios. (1) Short-term ownership: corporate relocators, military families with PCS orders, careers requiring frequent moves, "starter home" buyers planning to upgrade in 3-5 years. (2) Career-trajectory income growth: residents/fellows expecting partner-level salary jumps, founders with funded startups, high-bracket professionals with expected income doubling. The ARM's reset becomes affordable with future income. (3) Falling-rate environments: when you believe rates are at a cyclical high, a 7/1 ARM lets you ride the curve down before locking in a refinance — a bet on the rate path, which is why the reset rate here is an input and not a forecast.
ASEAN context
ASEAN markets dominantly use variable-rate or short-fixed-period mortgages. Singapore: floating-rate (SORA-pegged) and fixed-for-3-or-5-years are common. Pure 30-year fixed is rare and expensive. Malaysia: BR-pegged variable rates dominate. Indonesia, Thailand, Vietnam: variable rates linked to local benchmarks. The ARM-vs-fixed comparison framework still applies, but the comparison is "short-fixed-period vs longer-fixed-period" rather than US-style ARM vs 30-year fixed.
Caps, index plus margin, and the qualifying-rate rule behind every ARM
ARM = Adjustable-Rate Mortgage. Lower initial rate, resets annually after fixed period.
5/1, 7/1, 10/1: initial fixed period 5, 7 or 10 years, then annual resets. A 5/6 resets every six months after year five.
Reset rate = index + margin, rounded to the nearest one-eighth of a percent (Fannie Mae Selling Guide B2-1.4-02).
Cap notation 2/2/5 reads first-reset / later-reset / lifetime limits in percentage points. Every agency ARM plan must carry lifetime and per-adjustment caps.
Index for new agency ARMs: 30-day average SOFR from the New York Fed. USD LIBOR ceased in June 2023. Fannie Mae limits the margin to 300 basis points.
This tool re-amortises the balance at reset over the remaining term at your reset rate — the same mechanics as the note, one reset only.
Since 2014 the Ability-to-Repay rule (12 CFR 1026.43(c)(5)(i)(A)) qualifies ARM borrowers at the fully indexed rate or the introductory rate, whichever is greater.
Pre-2008 ARMs: option-ARMs, neg-am, 2/28 hybrids exposed homeowners to crushing payment shock. Banned or rare today.
ARMs are not for first-time buyers with thin emergency reserves. Reset payment shock can destabilise household finances.
Best ARM candidates: known short hold periods, growing-income trajectories, falling-rate cycles.
Frequently asked questions
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First number: years of initial fixed rate. Second number: how often the rate adjusts after the initial period. 5/1: fixed for 5 years, then adjusts every year. 7/1: fixed for 7 years, then annual adjustments. 10/1: fixed for 10 years, annual after. There are also 5/6 ARMs (adjusts every 6 months) — rarer. The longer the initial fixed period, the smaller the rate discount vs 30-yr fixed.
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Limits on how much the rate can move. The notation 2/2/5 means (1) the first reset cannot move the rate more than 2 points, (2) later resets cannot move it more than 2 points each, (3) the lifetime ceiling is 5 points above the initial rate — so a 6.5% ARM under those caps tops out at 11.5%. Caps are not new and are not universal in size: every ARM plan Fannie Mae purchases must carry lifetime and per-adjustment caps, and the CFPB's Consumer Handbook on Adjustable-Rate Mortgages walks through reading them off your Loan Estimate. Enter your own lifetime cap as the pessimistic reset scenario.
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Post-2023: SOFR (Secured Overnight Financing Rate) dominates. 1-year Treasury is also common for ARMs. 11th District Cost of Funds Index (COFI) for some California ARMs. LIBOR: phased out in 2023 — if you have an older LIBOR-indexed ARM, it transitioned to SOFR. Your loan documents specify the exact index. The reset rate = index value at reset date + your loan's margin (set at origination, typically 2-3%).
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Yes, anytime. Most ARM-takers plan to do exactly this if rates fall favourably. The play: take the lower ARM teaser rate, then refinance to fixed when rates drop or before the ARM resets. Risks: (a) rates DON'T drop, leaving you stuck at the ARM reset, (b) credit quality deteriorates (job loss, divorce, medical event), making refi qualification harder, (c) home value drops, pushing LTV above refi thresholds. Always have a fallback plan if refinance isn't possible at the moment you need it.
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Yield curve. When short-term rates are much lower than long-term rates (normal/steep yield curve), ARMs (priced off short-term) are MUCH cheaper than fixed (priced off long-term Treasury). When the curve inverts — short rates above long rates, as in 2022–2023 — the ARM discount can shrink to almost nothing and the trade stops making sense. The gap between the two quotes you enter here is the market's current answer; yield-curve dynamics are the macro environment you are betting on with an ARM.
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No — you set it. The calculator doesn't predict future rates. It runs the math given YOUR assumed reset rate. Run multiple scenarios: conservative (rates stay flat → reset ~= current fixed), pessimistic (rates rise 2%+ → reset hits cap), realistic (rates drift up modestly). The answer changes with each assumption. ARMs are inherently a rate-environment bet.
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Interest-only ARMs let you pay only interest (no principal) during an initial period — typically 5-10 years. Lower payments but you build NO equity. After the I/O period ends, payments jump dramatically as you must amortize the remaining balance over the remaining term. These were major contributors to the 2008 crisis. Today they're rare and restricted to high-credit borrowers with substantial reserves. Avoid for primary residences unless you have a very specific cash-flow reason and a clear payoff plan.
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Excellent timing. If rates seem likely to fall meaningfully: (a) take the ARM at the lower initial rate, (b) refinance to a lower fixed when rates drop. Worst case if rates DON'T fall: you ride out the initial period (5-10 years), then face the reset. Even then, the savings during the initial period may be enough to make the ARM net-positive — run the reset scenario here to see whether they are for your numbers rather than assuming so.
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No. Loan, rates, hold, reset assumption — every input stays in your browser. The ARM-vs-fixed comparison runs entirely client-side. Open DevTools → Network when you click Compare and you'll see zero outbound requests.
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CFPB Consumer Handbook on Adjustable-Rate Mortgages — required disclosure, accessible at consumerfinance.gov. HUD Handbook 4000.1 for FHA ARM rules. The handbook (often called the CHARM booklet) was originally a Federal Reserve Board publication and is now maintained by the CFPB. Lender Loan Estimates must show the initial rate, the index and margin, the caps and the adjustment schedule.
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Method & sources
How it computes
Amortises a fixed-rate loan and a hybrid ARM month by month with the standard level-payment formula P·r(1+r)^n/((1+r)^n−1), models one ARM reset at the end of the introductory period by re-amortising the remaining balance over the remaining term at the user's reset rate, and compares total payments, total interest and remaining balance over the user's hold period. Rate caps, index and margin are not modelled — the reset rate is a user forecast.
What this tool implements
- Standard US level-payment monthly amortisation; interest = balance × annual rate ÷ 12
- Hybrid ARM naming (5/1, 7/1, 10/1) and index-plus-margin reset mechanics as described in the CFPB Consumer Handbook on Adjustable-Rate Mortgages
- Single reset at the end of the fixed period held flat thereafter — periodic and lifetime caps are described on the page but not enforced by the calculator
- Reset rate is an input; the tool makes no rate forecast
Sources
- Consumer Financial Protection Bureau. Consumer Handbook on Adjustable-Rate Mortgages (CHARM booklet). https://files.consumerfinance.gov/f/documents/cfpb_charm_booklet.pdf
- 12 CFR 1026.43(c)(5)(i)(A) — Ability-to-Repay: ARM payment calculated at the fully indexed rate or any introductory rate, whichever is greater. https://www.consumerfinance.gov/rules-policy/regulations/1026/43/
- Fannie Mae Single-Family Selling Guide B2-1.4-02, Adjustable-Rate Mortgages (30-day average SOFR index; maximum 300 bp margin; lifetime and per-adjustment caps required). https://selling-guide.fanniemae.com/sel/b2-1.4-02/adjustable-rate…
What can make this go out of date
- None at runtime — every rate is user-entered. The index (30-day average SOFR) and cap structures named in the prose follow Fannie Mae's Selling Guide, which is revised periodically
Pick up where you left off
Stored only in this browser — never sent to our servers.