ARM vs Fixed Rate Mortgage Calculator
Compare adjustable and fixed-rate mortgages based on how long you plan to stay.
Loan Details
Recommendation
ARM may save you $15,553 over 7 years, but carries rate risk after year 5.
Fixed vs ARM Comparison
| Feature | Fixed | ARM |
|---|---|---|
| Initial monthly P&I | $2,270 | $2,043 |
| Rate | 6.75% (locked) | 5.75% → up to 10.8% |
| Total paid over 7 years | $190,688 | $175,135 |
| Max possible payment | $2,270 (never changes) | $3,267 (worst case) |
| Payment certainty | 100% predictable | Fixed for 5 years, then adjusts |
| Risk level | None | Moderate |
ARM saves $15,553 over 7 years
ARM Rate & Payment Projection
| Year | ARM Rate | ARM Payment | Fixed Payment | Difference |
|---|---|---|---|---|
| 1 | 5.75% | $2,043 | $2,270 | -$227 |
| 2 | 5.75% | $2,043 | $2,270 | -$227 |
| 3 | 5.75% | $2,043 | $2,270 | -$227 |
| 4 | 5.75% | $2,043 | $2,270 | -$227 |
| 5 | 5.75% | $2,043 | $2,270 | -$227 |
| 6 | 6.25% | $2,142 | $2,270 | -$128 |
| 7 (move) | 6.75% | $2,240 | $2,270 | -$30 |
| 8 | 7.25% | $2,338 | $2,270 | +$68 |
| 9 | 7.75% | $2,435 | $2,270 | +$165 |
Yellow rows = ARM has begun adjusting. Rates assume 0.5%/year increase after fixed period.
Key Considerations
- 1.Initial savings of $227/month could be invested for additional returns
- 2.ARM rates are tied to SOFR (Secured Overnight Financing Rate) — watch Fed policy for direction
- 3.You can always refinance from ARM to fixed later, but refinancing costs $2,000–$5,000
This comparison assumes a simplified rate projection. Actual ARM adjustments depend on the index (SOFR) and margin at each reset date.
How ARM Loans Work
An adjustable-rate mortgage starts with a lower rate for a fixed period (3, 5, 7, or 10 years), then adjusts annually based on a market index (typically SOFR) plus a margin. A "5/1 ARM" means 5 years fixed, then adjusts once per year. Rate caps limit how much the rate can increase per adjustment and over the life of the loan, protecting you from extreme jumps.
2026 Average Rates — ARM vs Fixed
| Product | Average Rate | Monthly P&I ($350K loan) | Rate Savings vs 30-yr Fixed |
|---|---|---|---|
| 30-year fixed | 6.75% | $2,270 | — |
| 15-year fixed | 6.00% | $2,953 | 0.75% (higher payment, less interest) |
| 5/1 ARM | 5.75% | $2,042 | 1.00% |
| 7/1 ARM | 6.00% | $2,098 | 0.75% |
| 10/1 ARM | 6.25% | $2,155 | 0.50% |
When ARM Makes Sense
| Scenario | Best Choice | Why |
|---|---|---|
| Staying 3–5 years | 5/1 ARM | Lower rate, sell before adjustment |
| Staying 5–7 years | 7/1 ARM | Moderate savings, protected period covers stay |
| Staying 10+ years | 30-year fixed | Payment certainty outweighs ARM savings |
| Expect rates to drop | ARM | Your rate drops automatically without refinancing |
| Expect rates to rise | Fixed | Lock in today's rate before increases |
Frequently Asked Questions
What are ARM rate caps?
Rate caps come in three forms: initial cap (max increase at first adjustment, typically 2%), periodic cap (max increase per subsequent adjustment, typically 2%), and lifetime cap (total increase over the initial rate, typically 5%). So a 5/1 ARM at 5.75% with 2/2/5 caps could never exceed 10.75%.
Can I refinance out of an ARM before it adjusts?
Yes, and many borrowers plan on this strategy. You enjoy the lower ARM rate for the fixed period, then refinance to a fixed rate before the first adjustment. The risk: if rates have risen significantly by then, your new fixed rate may be higher than what you started with. Refinancing also costs $2,000–$5,000 in closing costs.
See also: Mortgage Calculator and FHA Loan Calculator.