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.