Compare an adjustable rate mortgage (ARM) against a fixed-rate mortgage. See how your payments could change when the initial rate period ends and the rate adjusts. Enter the initial rate, adjustment caps, and expected rate environment to project costs.
An Adjustable Rate Mortgage (ARM) is a hybrid loan: fixed for an initial period (commonly 5, 7, or 10 years), then floating with market rates for the rest of the loan term. The trade is straightforward — lower initial rate in exchange for rate uncertainty later. In moderate-rate environments, the ARM rate often comes in 0.5–1.0% below the comparable 30-year fixed, which can save real money for borrowers who don't intend to hold the loan to maturity.
The naming convention is "X/Y" — e.g., 5/1 ARM means 5 years fixed, then adjusts annually. 7/6 ARM means 7 years fixed, then adjusts every 6 months. After the fixed period, the rate resets to the chosen index (often the Secured Overnight Financing Rate, SOFR) plus a margin (typically 2–3 percentage points), subject to caps that limit how much the rate can move at each adjustment and over the life of the loan.
This calculator compares an ARM's lifetime cost against a fixed-rate alternative under a single scenario for the post-adjustment rate. The honest answer about whether the ARM saves money depends on what rates do — which no one knows. Use the calculator to test multiple post-adjustment scenarios (lower, same, higher) and assess whether you can afford the payment under the worst-case cap. If the worst case is unaffordable, the ARM is wrong for your situation regardless of how good the math looks under benign assumptions.
$400,000 loan, 7/1 ARM at 6.25%, vs 6.875% fixed. Planning to sell in year 6. 7/1 ARM payment (years 1–7): $2,463 6.875% fixed payment: $2,627 Monthly savings: $164. Cumulative savings over 6 years: $11,800. Since you sell before any rate adjustment, the rate environment at year 7 doesn't matter. The ARM is the clear winner for short-horizon holders.
$350,000 loan, 5/1 ARM at 5.5%, vs 6.5% fixed. Post-adjustment rate also 5.5% (rates flat). Years 1–5 ARM payment: $1,988 Years 6–30 ARM payment: $1,988 (unchanged, if rate truly flat) Fixed 6.5% payment: $2,212 Monthly savings: $224 every month for 30 years. Lifetime savings: ~$80,600. The "rates stay flat" scenario is the best case for ARMs. In reality, rates fluctuate — but if your post-adjustment rate is close to or below the original fixed-rate alternative, you win.
$400,000 loan, 5/1 ARM at 5.5%, vs 6.5% fixed. Rate adjusts to 9.5% (worst case under 2/2/5 caps). Years 1–5 ARM payment: $2,271 Years 6–30 ARM payment at 9.5%: $3,177 (payment shock +$906) Fixed 6.5% payment: $2,528 Monthly cost in adjustment period: $649 more than fixed. Cumulative cost vs fixed: +$70,000 over the loan life. This is why ARMs are dangerous for long-term holders. The savings during the fixed period evaporate quickly if rates rise sharply. Always verify you can afford the worst-case capped payment.
Use this calculator before deciding between an ARM and a fixed-rate mortgage. The decision hinges on two questions: (1) How long will you actually keep the loan? and (2) Can you afford the worst-case payment if you keep it past the fixed period?
ARMs make the most sense when: you're confident you'll sell or refinance within the fixed period (military relocation, certain career change, planned move), you're in a high-rate environment where rates are likely to fall (so adjustment is downward), the ARM rate is meaningfully (0.5%+) below the comparable fixed, or you can comfortably afford the worst-case capped payment.
Fixed rates make the most sense when: you plan to stay in the home long-term (10+ years), you value payment certainty regardless of rate movements, the gap between ARM and fixed is small (under 0.25%), or you couldn't handle the worst-case capped payment.
Pair this with the mortgage-payment calculator (for fixed-rate scenarios), the mortgage-refinance calculator (since refinancing out of an ARM before adjustment is a common exit strategy), and the home-affordability calculator (to confirm you can support both the initial and capped payments).
A practical note: the post-2008 ARMs are far more borrower-friendly than the pre-2008 versions that caused the financial crisis. Today's ARMs are fully amortizing (no negative amortization), require qualified-mortgage underwriting (qualified at the fully indexed rate, not the teaser), and have transparent caps. The category is no longer the trap it once was — but it still requires careful analysis of the worst case.
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Compare against this fixed rate
Initial ARM Payment
$1,987
Adjusted ARM Payment
$2,391
Fixed-Rate Payment
$2,270
ARM vs Fixed Savings
$-19,442
Fixed saves
| Year | Rate | Payment | Interest | ARM Balance | Fixed Balance |
|---|---|---|---|---|---|
| 1 | 5.50% | $1,987.26 | $19,132.32 | $345,285.19 | $346,269.88 |
| 2 | 5.50% | $1,987.26 | $18,866.37 | $340,304.42 | $342,280.04 |
| 3 | 5.50% | $1,987.26 | $18,585.42 | $335,042.70 | $338,012.40 |
| 4 | 5.50% | $1,987.26 | $18,288.62 | $329,484.18 | $333,447.61 |
| 5 | 5.50% | $1,987.26 | $17,975.07 | $323,612.11 | $328,564.98 |
| 6 | 7.50% | $2,391.46 | $24,115.53 | $319,030.06 | $323,342.39 |
| 7 | 7.50% | $2,391.46 | $23,759.81 | $314,092.29 | $317,756.16 |
| 8 | 7.50% | $2,391.46 | $23,376.48 | $308,771.19 | $311,780.97 |
| 9 | 7.50% | $2,391.46 | $22,963.39 | $303,037.00 | $305,389.74 |
| 10 | 7.50% | $2,391.46 | $22,518.23 | $296,857.64 | $298,553.50 |
| 11 | 7.50% | $2,391.46 | $22,038.51 | $290,198.57 | $291,241.26 |
| 12 | 7.50% | $2,391.46 | $21,521.55 | $283,022.54 | $283,419.90 |