Adjustable Rate Mortgage (ARM) Calculator
An adjustable rate mortgage (ARM) offers a lower initial interest rate than fixed-rate mortgages, but the rate changes periodically after an initial fixed period. This calculator models three scenarios: best case (rate stays flat), expected case (based on your assumption), and worst case (all caps applied at each adjustment). Specify your ARM type (such as 5/1, 7/1 or 10/1), the initial rate, and the initial, periodic and lifetime rate caps that limit how much the rate can increase. The tool generates a year-by-year table showing projected monthly payments and rates under each scenario, plus the total interest cost over the loan's life. Compare your ARM against a fixed-rate alternative to understand the total cost difference over your planned stay. ARMs make sense if you plan to sell or refinance before the rate adjusts, but require careful budgeting if you plan to stay through rate increases.
On a $320,000 loan at 5.75% initial rate (5/1 ARM), the initial payment is --/mo. Worst case (all caps hit): --/mo.
Year-by-year rate and payment table
The table below shows the projected interest rate and monthly payment for each year, under all three scenarios.
| Year | Best case rate | Best case payment | Expected rate | Expected payment | Worst case rate | Worst case payment |
|---|---|---|---|---|---|---|
| Enter values above to see the table. | ||||||
How ARM rate adjustments work
After the initial fixed period, the rate adjusts periodically. The new rate is calculated as the current index rate plus the lender's margin, subject to the applicable cap. The CFPB describes this in its ARM guide.
Rate at first adjustment = min(initial + initial cap, max(initial - initial cap, index + margin))
Rate at subsequent adjustments = min(prev + periodic cap, max(prev - periodic cap, index + margin))
All adjustments subject to: initial rate - lifetime cap <= rate <= initial rate + lifetime cap
Monthly payment at any rate = remaining balance x r x (1+r)^n / ((1+r)^n - 1)
where r = current annual rate / 12 and n = remaining months
Worst case scenario: caps hit at every adjustment
For the worst case, this calculator applies the full initial cap at the first adjustment and the full periodic cap at every subsequent adjustment, up to the lifetime cap ceiling. This shows the maximum payment you could ever face. The CFPB recommends verifying you can afford this payment before taking an ARM.
Best case scenario: rate stays flat
In the best case, the index stays flat and the rate never rises above the initial rate. The payment during the adjustment period is slightly higher than the initial payment because the loan balance decreases more slowly with a lower initial rate.
ARM calculator: frequently asked questions
What is an adjustable rate mortgage (ARM)?
An ARM has an interest rate that changes periodically after an initial fixed period. For example, a 5/1 ARM has a fixed rate for the first 5 years, then adjusts annually. The rate is tied to a market index (now typically SOFR) plus a margin set by the lender. The CFPB explains ARMs at consumerfinance.gov/ask-cfpb/what-is-an-adjustable-rate-mortgage-en-100/.
How do ARM rate caps work?
ARM caps limit how much the interest rate can change. The initial cap limits the first adjustment (for example, 2% means the rate cannot jump more than 2 percentage points at first adjustment). The periodic cap limits each subsequent adjustment. The lifetime cap limits the total change from the initial rate over the life of the loan. A common cap structure is 2/2/5: 2% initial, 2% periodic, 5% lifetime.
When does an ARM make sense?
An ARM can save money if you plan to sell the home or refinance before the first adjustment. The initial rate on an ARM is typically lower than a comparable fixed-rate mortgage. However, if you stay past the initial period and rates rise, your payment will increase. The CFPB advises borrowers to understand the worst-case scenario before choosing an ARM.
What index do ARMs use in 2026?
Most new ARMs are now indexed to SOFR (Secured Overnight Financing Rate), which replaced LIBOR after its discontinuation. Older ARMs indexed to LIBOR were transitioned to SOFR under the Adjustable Interest Rate (LIBOR) Act of 2021. Your loan documents and monthly statement show the current index rate and margin that determine your rate.
How do I compare an ARM to a fixed-rate mortgage?
Compare the total interest cost over your planned stay, not just the initial rate. An ARM may have a lower rate for the first few years but higher payments later. Use the fixed-rate comparison field in this calculator to see the total cost difference over your planned ownership period. The CFPB's loan options guide at consumerfinance.gov/owning-a-home/loan-options/ walks through this comparison.
What is the payment shock on an ARM?
Payment shock is the sudden increase in monthly payment when an ARM rate adjusts upward. It is most pronounced at the first adjustment if the initial cap allows a large jump. To prepare, the CFPB recommends budgeting for the maximum possible payment under the worst-case scenario (all caps applied at each adjustment).
Official sources
- CFPB: What is an adjustable-rate mortgage?
- CFPB: Adjustable-rate mortgages (ARMs)
- Federal Reserve: Selected Interest Rates (H.15) (index rate reference)
- Adjustable Interest Rate (LIBOR) Act, Pub. L. 117-103: SOFR replacement for legacy LIBOR ARMs.
Reviewed by the CalculatorHub team, edited by James Graham, 13 June 2026. See our methodology. General information, not financial advice.