ARM vs Fixed Rate Mortgage Calculator
Compare monthly payments between an adjustable-rate mortgage (ARM) and a fixed-rate mortgage. Ideal for homebuyers deciding whether short-term ARM savings outweigh long-term fixed-rate stability.
About this calculator
A fixed-rate mortgage uses the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the loan amount, r is the monthly interest rate, and n is the number of payments (360 for a 30-year loan). An ARM has a lower introductory rate that applies only during its fixed period (e.g., 5 years for a 5/1 ARM), after which the rate adjusts. This calculator computes the fixed monthly payment for each product during the ARM's initial period and shows the difference. The savings during the ARM's fixed window can be significant, but borrowers must weigh that against the risk of rising rates once the ARM begins adjusting. Understanding this spread helps you decide whether to lock in a rate or take the initial discount.
How to use
Suppose you borrow $400,000. The fixed rate is 7.00% and the ARM initial rate is 5.50% with a 5-year fixed period. Fixed monthly payment: 400,000 × (0.07/12 × (1 + 0.07/12)^360) / ((1 + 0.07/12)^360 − 1) ≈ $2,661. ARM monthly payment during years 1–5: 400,000 × (0.055/12 × (1 + 0.055/12)^60) / ((1 + 0.055/12)^60 − 1) ≈ $2,271. Monthly savings with the ARM: $2,661 − $2,271 = $390. Over 5 years that's roughly $23,400 in savings — before any rate adjustment occurs.
Frequently asked questions
When does an ARM make more financial sense than a fixed-rate mortgage?
An ARM typically makes sense when you plan to sell or refinance before the initial fixed period ends, letting you capture the lower rate without exposure to future adjustments. It can also be advantageous when current fixed rates are unusually high and you expect rates to fall, allowing you to refinance later. However, if you plan to stay in the home long-term, the certainty of a fixed payment usually outweighs the ARM's early savings.
How does the ARM initial rate affect total interest paid over the loan?
The lower ARM initial rate reduces both your monthly payment and the principal balance faster during the fixed period, since more of each payment goes toward principal. This can produce meaningful interest savings over 5–7 years. However, once the rate adjusts, your new payment is recalculated on the remaining balance at the prevailing index plus margin, which may exceed what you'd have paid with a fixed rate all along.
What is the difference between a 5/1 ARM and a 7/1 ARM mortgage?
A 5/1 ARM keeps the initial rate fixed for 5 years, then adjusts once per year thereafter. A 7/1 ARM provides two extra years of rate certainty before it starts adjusting. The 7/1 ARM usually carries a slightly higher initial rate than the 5/1, reflecting the longer guaranteed period. Choosing between them depends on your expected time in the home and your tolerance for payment uncertainty after the fixed window closes.