ARM vs Fixed Rate Calculator

The ARM vs fixed rate calculator projects the total cost of each mortgage type over your chosen time horizon by modeling how the adjustable rate changes after the initial fixed period while the fixed rate stays constant throughout. For the fixed-rate scenario, the calculation is straightforward. The calculator uses the standard amortization formula with your fixed interest rate and loan term to produce a single monthly payment that never changes. It then multiplies that payment by the number of months in your comparison period to determine the total cost. The adjustable-rate mortgage calculation is more complex because the rate changes over time. During the initial fixed period, typically 3, 5, 7, or 10 years, the ARM payment is calculated just like a fixed-rate loan using the initial ARM rate, which is usually lower than the fixed rate. After the initial period ends, the calculator models annual rate adjustments. Each year after the fixed period, the ARM rate increases by the adjustment cap amount until it reaches the lifetime cap. For example, a 5/1 ARM with a 2 percent adjustment cap and 5 percent lifetime cap starting at 5.75 percent could adjust to 7.75 percent in year six, 9.75 percent in year seven, and max out at 10.75 percent in year eight. The calculator recalculates the monthly payment after each adjustment based on the remaining balance and remaining term. The tool then compares the total payments, total interest, and remaining balance for each option at various time points. This helps you see exactly when the ARM stops being cheaper than the fixed rate, which is your crossover point. If you plan to sell or refinance before that crossover, the ARM likely saves money. If you plan to stay longer, the fixed rate provides cost certainty and likely costs less overall.