ARM Calculator (Adjustable-Rate Mortgage)
An adjustable-rate mortgage is three loans in one: the starter payment, the expected payment after the fixed period, and the worst case at the lifetime cap. See all three before you sign.
Price the loan you might get, not just the one you sign
An adjustable-rate mortgage advertises its honeymoon payment. The honest budget is built from three numbers: that starter payment, the payment at the rate you actually expect after the fixed period, and the payment at the lifetime cap — the worst the contract allows. If the third number is unpayable, the loan is unaffordable at any starter rate.
After the fixed period: payment = remaining balance amortized over the remaining term at the adjusted (or cap) rate
Example: $300,000, 5 fixed years at 5.5%, then adjusting. Starter payment $1,703. When the fixed period ends the balance is about $282,900; at an expected 7% the payment becomes ~$2,010, and at a 10.5% cap it becomes ~$2,773 — the range your budget must survive.
What '5/1 ARM' actually promises
The first number is years of fixed rate; the second is how often it adjusts afterward (yearly, in a 5/1). Caps come in threes — first adjustment, periodic, lifetime — and this calculator uses the lifetime cap, the ceiling that matters most. Index and margin (the two pieces that will set your future rate) are estimates you supply here, because nobody knows them in advance.
How this is calculated
The starter phase amortizes normally at the starting rate. The balance at the end of the fixed period comes from the amortization formula. Both future payments then amortize that balance over the remaining term at your expected adjusted rate and at the lifetime cap rate. Adjustment caps within the path (first/periodic) are not modeled — the cap scenario is deliberately the contract's worst case, and the expected scenario is your own estimate.
Frequently asked questions
When does an ARM make sense?
When you are confident you will sell or refinance before or soon after the first adjustment, or when the cap payment is comfortably affordable anyway. The discount is payment for risk you knowingly carry.
What are the index and margin?
Your adjusted rate will be a published index (today usually SOFR or a Treasury rate) plus a fixed margin set in your contract. The margin is negotiable at signing and unchangeable after.
Can my payment shock be limited by caps?
Periodic caps limit how far the rate moves per adjustment, which softens the path — but the lifetime cap is where it can still end. Budget on the lifetime figure.
Is the starter rate a teaser?
It is a real fixed rate for the fixed period — the 'teaser' aspect is that it is priced off the short end of the yield curve because the lender's risk ends at the first adjustment. Yours begins there.
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