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Fixed-Rate vs. ARM Mortgage Calculator
Two of the most common types of mortgage loans are fixed-rate mortgages and adjustable-rate mortgages (ARMs). A fixed-rate mortgage provides homebuyers with an interest rate that does not change over the term of their loan. On the other hand, an adjustable-rate mortgage, or ARM, offers homebuyers an initial interest rate for a set period which then changes according to the market after the introductory period is over – if current market interest rates are lower the borrower’s rate will drop and if current market rates are higher it will increase. The calculator below will help you determine what your monthly mortgage payment could be under various terms that you select for both a fixed-rate mortgage and ARM.
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By changing any value in the following form fields, calculated values are immediately provided for displayed output values. Click the view report button to see all of your results.
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**FIG_GRAPHTITLE** Column Graph: Please use the calculator's report to see detailed calculation results in tabular form.
Financial Calculators from
Dinkytown.net
ARM vs. Fixed Rate Mortgage
Fixed Rate Mortgage: | Monthly payment $0.00 |
Report amortization:
Fully Amortizing ARM: | Initial payment $0.00 |
Monthly Payment by Mortgage Type |
Definitions
Fixed Rate Mortgage
A fixed-rate mortgage has the same interest rate and monthly payment throughout the term of the mortgage.
Fully Amortizing ARM
This calculator shows a "fully amortizing" ARM, which is the most common type of ARM. The monthly payment is calculated to pay off the entire mortgage balance at the end of a 30-year term. After the initial period, the interest rate and monthly payment adjust at the frequency specified. The amount an ARM can adjust each year, and over the life of the loan, are typically capped. Below is a list of common ARMs.
| ARM Type | Months Fixed |
|---|---|
| 10/1 ARM | Fixed for 120 months, adjusts annually for the remaining term of the loan. |
| 7/1 ARM | Fixed for 84 months, adjusts annually for the remaining term of the loan. |
| 5/1 ARM | Fixed for 60 months, adjusts annually for the remaining term of the loan. |
| 3/1 ARM | Fixed for 36 months, adjusts annually for the remaining term of the loan. |
| 10/6 month ARM | Fixed for 120 months, adjusts every six months for the remaining term of the loan. |
| 7/6 month ARM | Fixed for 84 months, adjusts every six months for the remaining term of the loan. |
| 5/6 month ARM | Fixed for 60 months, adjusts every six months for the remaining term of the loan. |
| 3/6 month ARM | Fixed for 36 months, adjusts every six months for the remaining term of the loan. |
Mortgage amount
Original or expected balance for your mortgage.
Term in years
The number of years over which you will repay this loan. Common fixed-rate mortgage terms are 15, 20 and 30 years.
Expected adjustment
The annual adjustment you expect in your ARM, after the initial period ends. The range for this calculator is minus 3% to plus 3%. Use a negative value if you believe interest rates will decrease, a positive value if you believe they will increase.
Interest rate
Annual interest rate for each mortgage type. Typically an ARM will have a lower initial interest rate than a fixed-rate mortgage. Please note that the interest rate is different from the Annual Percentage Rate (APR), which includes other expenses such as mortgage insurance, and the origination fee and or point(s), which were paid when the mortgage was first originated. The APR is normally higher than the simple interest rate.
Months rate fixed
This is the number of months the rate is fixed for an ARM. During this period the interest rate and the monthly payment will remain fixed. The rate will then adjust annually by the amount entered in the "Expected Adjustment" field.
Months between adjustments
The number of payment periods between potential adjustments to your interest rate. The most common is 12 months, which means your payment could change at most once per year. Loans using the SOFR benchmark have six months between adjustments. The SOFR benchmark is based on what U.S. financial institutions pay each other for overnight loans. It is often used as a replacement for the LIBOR benchmark which is no longer used.
Interest rate cap
This is the highest allowable interest rate for your mortgage. Your interest rate can never be adjusted above this rate.
Monthly payment
Monthly principal and interest payment (PI) for the fixed-rate mortgage and the fully amortizing ARM.
What is a Fixed-Rate Mortgage?
The traditional fixed-rate mortgage is the most common type of loan program where monthly principal and interest payments never change during the life of the loan. One of the main benefits of a fixed-rate mortgage is predictability – your monthly payment won’t change unless you choose to refinance and you’ll be protected from market changes.
A 30-year fixed-rate mortgage will offer you a lower monthly payment since the loan term is spread out over a longer period. With this in mind, a shorter term fixed-rate mortgage would come with higher monthly payments but would result in your loan being paid in full more quickly and usually has a lower interest rate and Annual Percentage Rate (APR).
What is an Adjustable-Rate Mortgage (ARM)?
An adjustable-rate mortgage, or ARM, is a mortgage loan that has an interest rate that changes over the life of the loan. ARMs usually have a fixed interest rate for an initial period of time and adjust based on current market conditions. The initial rate on an ARM is lower than on a fixed rate mortgage which allows you to afford and hence purchase a more expensive home. Adjustable-rate mortgages are usually amortized over a period of 30 years with the initial rate being fixed for a portion of that time.
When the fixed interest rate period ends and the interest rate on your ARM adjusts, your lender will calculate your new interest rate based on the index identified in your promissory note (for mortgage loans this is usually the 1 year US Treasury or a published Secured Overnight Finance Rate or “SOFR”) plus a margin of additional interest rate added to this amount, which is then typically rounded to the nearest 1/8 of one percent to arrive at the new interest rate. In addition, the amount that your interest rate can change is subject to certain caps up and down. This new rate will then be fixed for the next adjustment period and your monthly payments of principal and interest will adjust up or down based on that new interest rate. These adjustments can occur every six or twelve months based on the specific terms of your loan.
ARMs are usually expressed as two numbers, the first being the number of years the borrower will have the initial fixed rate for and the second being how often the rate will change (in years or months) throughout the remainder of the loan term. For example, a loan that has a fixed interest rate for five years and then adjusts every six months is commonly referred to as “5/6” ARM, where as a loan with a fixed interest rate for seven years and adjusts every year thereafter is referred to as a “7/1” ARM.
What is the Difference Between a Fixed-Rate Mortgage and Adjustable-Rate Mortgage?
Fixed-rate mortgages and ARMs have different benefits, many of which are dependent on current market conditions. As mentioned above, the biggest difference between the two is that a fixed-rate mortgage means your monthly payments of principal and interest will not change for so long as you have the loan. An ARM comes with an initial fixed interest rate which then changes over the remainder of the loan term based on current market conditions, which can result in changes to your monthly principal and interest payment. The calculator above will help you estimate your monthly payments with both a fixed-rate mortgage and adjustable-rate mortgage so you can compare the two.
How to Calculate the Difference Between Fixed-Rate Mortgages and ARMs
For a fixed-rate mortgage, simply enter the mortgage amount, loan term, and interest rate above to estimate your monthly payment amount. For ARMs, choose how the loan will amortize, enter your initial interest rate, number of months with the fixed rate, adjustment frequency after the initial period, the expected interest rate adjustment, and interest rate cap to calculate your monthly payment amount.
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