ARM vs Fixed Mortgage Calculator
Compare 5/1, 7/1, 10/1 Adjustable Rate Mortgage (ARM) vs 30-year fixed — initial rate savings, reset risk, break-even analysis. The math reveals when ARM makes sense and when it's a trap.
ARM Basics — How 5/1 Works
5/1 ARM: 5 years fixed initial rate, then adjusts annually for remaining 25 years. Index (typically SOFR + margin 2.25-3.0%) determines new rate at each reset. Caps: typically 2% per adjustment, 5% lifetime cap. Initial ARM rate usually 0.5-1.5% below 30-year fixed rate. Trade-off: lower payments first 5 years vs uncertainty after. 7/1 ARM: 7 years fixed. 10/1 ARM: 10 years fixed. Longer fixed period = less rate discount.
When ARM Saves Money
Scenario: $400K mortgage. 30-year fixed at 7.0% = $2,661/month. 5/1 ARM at 6.0% = $2,398/month. First 5 years savings: $263/month × 60 = $15,800. Worth it ONLY if: (1) You'll sell or refinance within 5 years (saved cash), or (2) Rates fall by then (refinance into fixed at lower rate). Wrong call: stay in home with ARM, rates jump to 9% at reset = $3,219/month (+$558 vs original fixed).
The Reset Risk Math
ARMs have caps but caps are wide. 5/1 ARM at 6%, 2/2/5 cap structure: Year 6 max 8%. Year 7 max 10%. Lifetime max 11%. On $400K: Year 7 payment could go from $2,398 to $3,418 = $1,020/month increase = $12,240/year shock. Many ARM holders during 2007-2008 crisis faced exactly this and lost homes. Stress-test your budget at lifetime cap before signing ARM.
When Fixed Beats ARM
(1) Plan to stay 7+ years in home. (2) Rates already low historically — limited room to fall. (3) Can't afford lifetime cap rate. (4) Risk-averse buyer who hates uncertainty. (5) Income is variable. Fixed mortgage = peace of mind worth the rate premium. ARM = bet on rates staying flat or falling. Most homeowners do NOT take ARMs in 2026 environment — rates high enough that downside scenarios feel real.
Sources: CFPB ARM Disclosure, MBA Mortgage Origination Survey 2024. Last updated: May 2026.
Frequently Asked Questions
What is a 5/1 ARM?
5 years fixed rate, then adjusts annually for 25 more years. Initial rate typically 0.5-1.5% below 30-year fixed. Caps limit annual and lifetime adjustments.
When does ARM make sense?
When you plan to sell or refinance within fixed period. Initial savings without exposure to reset. Bad bet if you'll stay long-term and rates rise.
What if rates rise after reset?
Caps limit pain: typically 2% per year, 5-6% lifetime. On 6% ARM, lifetime cap might be 11% \u2014 significant payment increase. Stress-test budget at cap rate.
7/1 or 10/1 ARM instead?
Longer fixed period = smaller rate discount but more cushion before reset. 7/1 ARM saves less initially but covers 7 years of uncertainty vs 5.
Is this tool free?
Yes. 100% free, no sign-up. All math runs in your browser \u2014 your loan data never leaves your device.