ARMvsFixed
ARM vs Fixed Mortgage Calculator
Enter the loan amount, the ARM's intro rate and period, your best estimate of the rate after reset, and the fixed rate you're comparing it to. The verdict compares total cost over however long you plan to stay.
The loan
Typically 5, 7 or 10.
Your best estimate of the adjusted rate once caps are applied -- ask your lender for the worst-case first-adjustment cap.
The ARM saves $14,806 over 8 years
The ARM's early savings run out in year 18, when its cumulative cost catches up to the fixed loan's.
Staying past the intro period exposes you to the reset rate. Staying only through the intro period keeps all of the ARM's savings and none of its risk.
| ARM | Fixed | |
|---|---|---|
| Payment during intro period | $1,476 | $1,799 |
| Payment after reset | $1,925 | $1,799 |
| Total paid over 8 yrs | $157,865 | $172,671 |
How this is calculated
The ARM's payment is the standard amortization formula at the intro rate for the intro period, then a fresh amortization on the remaining balance at the post-reset rate for the rest of the term. The fixed loan is one amortization schedule for the full term. Cumulative cost is simply the sum of payments made through the years you specify -- there's no equity or resale involved, just cash paid.
| Years you stay | ARM total paid | Fixed total paid | ARM saves |
|---|---|---|---|
| 4 | $70,839 | $86,335 | $15,496 |
| 6 | $111,654 | $129,503 | $17,849 |
| 8 | $157,865 | $172,671 | $14,806 |
| 12 | $250,285 | $259,006 | $8,721 |
The ARM's savings shrink every year past the 5-year mark, once the higher post-reset payment is in effect, and turn negative around year 18.
Frequently Asked Questions
How is the payment after reset calculated?
The loan's balance at the end of the intro period is re-amortized over the remaining term at your expected post-reset rate. On a $300,000 loan with a 5-year, 4.25% intro period, the payment starts at $1,476/month, then jumps to $1,925/month if the rate resets to 7% -- a real, sharp increase, which is the whole risk of an ARM.
Why does the calculator ask for a single 'rate after reset' instead of modeling the rate caps directly?
Real ARMs cap how much the rate can move at the first adjustment, at each later adjustment, and over the life of the loan -- three separate numbers that vary by product. Rather than modeling all three, this calculator asks you to enter your best estimate of the actual post-reset rate, informed by those caps (your lender's disclosure will show the worst-case first-adjustment number). That's the same simplification most consumer ARM calculators use.
When does the ARM stop being worth it?
At these numbers, the ARM's cumulative cost catches up to the fixed loan's around year 18 -- before that, the ARM's lower intro payments keep it ahead even after the reset; after it, the higher post-reset payment erases the early savings. Staying only 5 years instead saves $19,370, safely inside the intro period.
What's the actual risk here?
Rates could reset higher than expected -- this calculator uses whatever you enter for the post-reset rate, which is a forecast, not a guarantee. If you're not confident you'll move, refinance, or pay off the loan before the reset, run this with a pessimistic reset-rate estimate (near your loan's lifetime cap) to see the worst case, not just your best guess.
Why would anyone take an ARM instead of a fixed rate?
A meaningfully lower intro rate, if you're confident you'll sell, refinance, or pay off the loan before the reset -- common for a starter home, a job that's likely to relocate you, or a loan you plan to pay down aggressively. It's a bet on your own timeline as much as on rates.
What if the loan resets more than once?
This calculator models a single reset, common in 5/1, 7/1 and 10/1 ARMs shown as a one-time jump to a stated rate for the remaining term. Some ARM products reset annually after the intro period -- if yours does, treat the 'rate after reset' input as an average expected rate across those adjustments, not a single hard number.
SidebySideCalc calculators apply standard, published formulas -- loan amortization, future-value-of-annuity, and deductible/coinsurance cost-sharing math -- to the numbers you enter. They are estimates for comparing two paths, not tax, legal, or financial advice: your lender, plan documents, and a tax professional decide the real figures for your situation.