ARM vs Fixed Mortgage Calculator
Compare a 5/1 adjustable-rate mortgage (ARM) against a 30-year fixed-rate mortgage side by side. See starting payments, worst-case reset payments after the fixed period, and total interest paid over the full loan so you can decide which structure fits your plans.
What Is an ARM vs a Fixed Mortgage?
A fixed-rate mortgage locks in one interest rate for the entire loan term, usually 15 or 30 years. An adjustable-rate mortgage (ARM) offers a lower initial rate for a fixed period — commonly 5, 7, or 10 years — then adjusts annually based on an index plus a margin. A 5/1 ARM means 5 years fixed, then resets every 1 year. ARMs typically start 0.5% to 1.5% below a comparable fixed rate, which lowers early payments but shifts interest-rate risk onto the borrower.
How the Reset Math Works
Each ARM has three caps: an initial adjustment cap (often 2%), a periodic cap (often 2% per year), and a lifetime cap (often 5% above the start rate). If you take a 6.5% 5/1 ARM with 2/2/5 caps, the worst-case rate in year 6 is 8.5%, rising up to 11.5% over the life of the loan. This calculator computes your payment at the starting rate and at the lifetime cap, so you see both the best and worst possible payments.
When an ARM Makes Sense
An ARM usually wins when you plan to sell or refinance within the fixed period, when rates are expected to fall, or when you need the lower initial payment to qualify. A fixed loan wins when you plan to stay long-term, rates are low, or you want payment certainty. Run both scenarios through this calculator with realistic assumptions about how long you will hold the home.
Total Interest Comparison
Even though an ARM starts cheaper, a worst-case reset can make its lifetime interest cost higher than the fixed loan. For a $400,000 loan at 6.5% ARM start vs 7.25% fixed, the ARM saves about $180/month for five years — roughly $11,000 — but a jump to 8.5% in year 6 adds $300/month. Compare both the payment and the total interest line to decide which structure serves you better.
Frequently Asked Questions
What does 5/1 ARM mean?
A 5/1 ARM has a fixed interest rate for the first 5 years, then adjusts once every 1 year for the remainder of the loan. The new rate is based on an index (like SOFR) plus a margin set by the lender, subject to adjustment caps.
What are ARM caps?
ARMs have three caps: initial (first adjustment, often 2%), periodic (each subsequent adjustment, often 2%), and lifetime (maximum total increase above the start rate, often 5%). These limit how fast and how high the rate can climb.
Is an ARM riskier than a fixed mortgage?
Yes, for long-term homeowners. ARMs shift interest-rate risk from the lender to you. If rates rise after the fixed period, your payment increases. Fixed mortgages cost slightly more upfront but eliminate rate risk entirely.
When should I pick an ARM?
ARMs work well when you plan to sell or refinance before the fixed period ends, when you expect rates to fall, or when you need the lower initial payment to qualify. Short holding periods favor ARMs.
Can I refinance an ARM into a fixed mortgage later?
Yes. Many borrowers start with an ARM and refinance into a fixed loan before the reset. The risk is that rates could be higher at refinance time, or your credit or home value could prevent qualifying.
What is the index on an ARM?
Most modern ARMs use SOFR (Secured Overnight Financing Rate) or the constant-maturity Treasury (CMT) as the index. The lender adds a margin (often 2.5-3%) to the index at each adjustment to set your new rate.