ARM vs Fixed Rate Mortgage Comparison
Compare the total cost of a fixed-rate mortgage against an adjustable-rate mortgage over a full 30-year term. Use this when deciding between an ARM's lower introductory rate and a fixed rate's long-term stability.
Last updated: September 2026
Formula below · 2 sources (CFPB, Wikipedia) · Updated Sep 2026
Compare with similar
About this calculator
A fixed-rate mortgage charges the same interest rate for the entire loan term, making monthly payments predictable. An adjustable-rate mortgage (ARM) starts with a lower introductory rate for an initial fixed period (e.g., 5 years for a 5/1 ARM), then adjusts based on a market index. This calculator computes the fixed monthly payment as: M_fixed = P × [r_fixed(1+r_fixed)³⁶⁰] / [(1+r_fixed)³⁶⁰ − 1]. For the ARM, it calculates the initial payment at the ARM initial rate on a 30-year schedule, works out the balance still owed when the fixed period ends, and re-amortizes that balance over the remaining months at (ARM initial rate + expected rate increase), which is how a real ARM resets. Total cost comparison = (Fixed total payments) − (ARM initial-period payments + ARM post-adjustment payments). A positive result means the fixed rate costs more overall; a negative result means the ARM costs more. The key risk with an ARM is that future rate increases are uncertain — the expected increase entered is an assumption, not a guarantee.
How to use
Example: $300,000 loan, fixed rate 6.5%, ARM initial rate 5.5%, 5-year adjustment period, expected rate increase 2.0%. Fixed payment: M = 300,000 × [0.005417 × (1.005417)³⁶⁰] / [(1.005417)³⁶⁰ − 1] ≈ $1,896.20/month, so the fixed total is $1,896.20 × 360 ≈ $682,633. ARM first 60 months at 5.5% (30-year schedule): about $1,703.37/month, or $102,202. Balance after 60 payments: about $277,382. ARM remaining 300 months at 7.5%: about $2,049.83/month, or $614,948. ARM total ≈ $717,150. Result: $682,633 − $717,150 ≈ −$34,517, meaning the ARM costs about $34,500 more over 30 years under these assumptions. If rates rose only 1 point instead, the ARM would come out ahead.
Frequently asked questions
When does an adjustable-rate mortgage make more financial sense than a fixed-rate mortgage?
An ARM makes sense when you plan to sell or refinance the property before the initial fixed-rate period expires, allowing you to benefit from the lower introductory rate without ever experiencing the rate adjustment. For example, if you take a 7/1 ARM and sell the home in year 5, you enjoy lower payments the entire time. ARMs can also make sense in a falling interest rate environment, where future adjustments are likely to be downward. However, if there is any chance you will stay in the home long term, the payment uncertainty of an ARM introduces significant financial risk.
How much lower are ARM rates compared to fixed rates typically?
Historically, ARM initial rates have been 0.5 to 1.5 percentage points lower than comparable 30-year fixed rates, though the spread varies with market conditions. The difference tends to be larger when the yield curve is steeply upward-sloping and smaller when the curve is flat or inverted. This initial savings is the core appeal of ARMs, but it must be weighed against the risk that the rate will rise substantially after the adjustment period, potentially making total payments far exceed those of a fixed-rate loan.
What happens to an ARM payment after the adjustment period ends?
After the initial fixed period of an ARM, the interest rate resets based on a benchmark index (such as SOFR) plus a margin set by the lender. Most ARMs have periodic caps (limiting how much the rate can change per adjustment, often 2%) and lifetime caps (limiting total increases over the loan's life, often 5–6%). If rates rise sharply, your monthly payment could increase by hundreds of dollars. The new payment is recalculated using the remaining loan balance, the new interest rate, and the remaining term, following the standard amortization formula.