ARM vs Fixed Mortgage Calculator
Choosing between an adjustable-rate mortgage (ARM) and a fixed-rate mortgage depends on how long you plan to keep the loan and where you expect interest rates to go. An ARM usually starts with a lower initial rate, making early payments cheaper. But after the fixed period ends, the rate adjusts annually and may exceed the fixed-rate alternative. This calculator compares total payments over your planned holding period under both scenarios, helping you see which option costs less given your assumptions.
ARM vs fixed comparison method
Fixed Total = M(fixed) * holding months
ARM Total = M(initial) * min(fixed period, holding) * 12
+ M(adjusted, remaining balance) * remaining months
For each scenario, the standard amortization formula M = P * r(1+r)^n / ((1+r)^n - 1) is used. The ARM balance after the initial fixed period is calculated from the original amortization, then re-amortized at the adjusted rate for the remaining term to find the new payment.
Key considerations when choosing
- If you plan to sell before or near the end of the ARM fixed period, the lower initial payment usually wins.
- If you plan to stay long-term and rates rise significantly, the fixed-rate mortgage may cost less overall.
- ARM caps limit how much the rate can rise, but do not eliminate the risk of higher payments.
- Ask your lender for the index, margin, and cap structure before modeling ARM scenarios.
- A positive difference (fixed minus ARM) means the ARM is cheaper over your holding period under the assumed adjusted rate.
ARM vs fixed mortgage: frequently asked questions
What is an adjustable-rate mortgage (ARM)?
An ARM has an initial fixed-rate period (commonly 5, 7, or 10 years) followed by annual adjustments based on a market index plus a margin. The rate can rise or fall, changing your payment each year after the initial period ends.
How does a 5/1 ARM work?
A 5/1 ARM has a fixed rate for the first 5 years, then adjusts once per year. The rate is subject to periodic caps (e.g., 2% per adjustment) and a lifetime cap (e.g., 5% above the start rate). Your lender must disclose all caps in the loan estimate.
When does an ARM save money vs a fixed rate?
An ARM typically saves money if you sell or refinance before or shortly after the first adjustment. If rates rise sharply after the fixed period, total ARM costs can exceed a fixed-rate mortgage held to the same term.
What are ARM rate caps?
Rate caps limit how much the rate can change. A typical structure is 2/2/5: the rate cannot increase more than 2% at the first adjustment, 2% at each subsequent adjustment, and 5% above the initial rate over the life of the loan.
How does this calculator model ARM payments?
This calculator uses the initial ARM rate for the fixed period, then applies the adjusted rate for the remaining holding period. For a worst-case estimate, set the adjusted rate to the initial rate plus the lifetime cap.
Official sources
- Consumer Financial Protection Bureau: What is an adjustable-rate mortgage?
- Freddie Mac: ARM Research.
Reviewed by the CalculatorHub team, edited by James Graham, 15 June 2026. See our methodology.