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ARM vs Fixed-Rate Mortgage Calculator
Which mortgage type fits your situation?
Compare adjustable and fixed-rate loans to find your optimal choice.
Compare ARM and Fixed-Rate Costs in Minutes
See payment differences, total costs, and risk scenarios before you choose a loan type.
Common Scenarios
- Short-term move: comparing an ARM's lower initial rate.
- Long-term stay: prioritizing payment stability.
- Rate uncertainty: stress-testing higher rate paths.
What You'll Get
- Recommended option based on your timeline
- Monthly payment differences
- Scenario-based total cost comparison
Quick Result
Recommended Option
ARM
Confidence: highInitial Monthly Payment Gap
$228
Fixed vs ARM initial payment
Based on
- • Loan Amount: $400,000
- • Fixed Rate: 6.75%
- • ARM Initial Rate: 5.875%
- • ARM Type: 7/1
- • Planned Stay: 7 years
Fixed for 7 years, adjusts yearly
Within ARM's fixed-rate period
Promotion, spouse returning to work, etc.
Consider the ARM
Based on your inputs and preferences
Fixed-Rate Mortgage
$2,594/mo
at 6.75% for 30 years
7/1 ARM
$2,366/mo
at 5.875% for first 7 years
ARM Risk Scenario
If rates rise after the fixed period, your payment could increase by up to $994/mo (42% increase). Maximum possible rate: 10.88%.
Monthly Payment Projection
Cumulative Cost Comparison
In a rising rate scenario, fixed-rate becomes more economical around year 15
Scenario Analysis During Your 7-Year Stay
| Scenario | Total Paid | vs Fixed |
|---|---|---|
Fixed Rate (6.75%) | $217,929 | — |
ARM: Rates Rise | $198,757 | +$19,172 |
ARM: Rates Stable | $198,757 | +$19,172 |
ARM: Rates Fall | $198,757 | +$19,172 |
This tool is for illustrative purposes only and does not constitute professional financial, tax, or legal advice. Calculations are estimates and may not reflect real-world variables or local regulations. Always consult with a qualified professional before making financial decisions.
Recommended Next Steps
Continue your journey with these related tools
This tool is for illustrative purposes only and does not constitute professional financial, tax, or legal advice. Calculations are estimates and may not reflect real-world variables or local regulations. Always consult with a qualified professional before making financial decisions.
Methodology and Trust
Formulas
Fixed-Rate Monthly Payment
P = (r * L) / (1 - (1 + r)^-N)
Uses the fixed rate and full loan term.
ARM Initial Monthly Payment
P0 = (r0 * L) / (1 - (1 + r0)^-N)
Applies the initial ARM rate during the fixed period.
Payment Difference
Δ = P_fixed - P_arm
Positive values mean the ARM starts cheaper.
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Understanding Your Options
Key Insights & Concepts
Choosing between a fixed-rate and adjustable-rate mortgage involves balancing immediate savings against long-term predictability. Your decision should align with your timeline, financial flexibility, and comfort with uncertainty.
How Adjustable-Rate Mortgages Work
Most adjustable loans today are "hybrid" products—they start with a fixed rate for an initial period (commonly 5, 7, or 10 years), then adjust periodically based on market conditions. The notation tells you the structure: a "7/1" means seven years fixed, then annual adjustments.
The Cap Structure
Caps protect you from dramatic rate swings. A typical 2/1/5 structure means: your rate can change by at most 2% at the first adjustment, 1% at each subsequent adjustment, and 5% over the entire loan term. Understanding these limits helps you calculate your worst-case payment.
When an ARM Makes Sense
Good Candidates
- Planning to move before the fixed period ends
- Expecting significant income growth
- Comfortable with payment variability
- Large rate differential vs. fixed options
Proceed with Caution
- Tight monthly budget with no buffer
- Planning to stay long-term
- Variable or uncertain income
- Small rate advantage over fixed
The Fixed-Rate Advantage
Fixed-rate mortgages eliminate interest rate risk entirely. Your principal and interest payment remains constant for the life of the loan, making long-term budgeting straightforward. This stability comes at a cost—fixed rates are typically higher than ARM introductory rates.
Rate Environment Considerations
When market rates are elevated, more borrowers consider ARMs hoping rates will decline. However, this bet can backfire—if rates rise or stay high, you could face payment shock. Conversely, in low-rate environments, locking in with a fixed-rate loan often makes more sense.
Remember: You can typically refinance from an ARM to a fixed-rate mortgage (or vice versa) later, though this involves closing costs and qualification requirements.