ARM & Interest-Only ARM vs. Fixed
Compare three options on the same loan: a fixed-rate mortgage, a fully-amortizing ARM, and an interest-only ARM — each with a very different initial payment.
How the arm & interest-only arm vs. fixed calculator works
This three-way view lines up a standard amortizing ARM, an interest-only ARM, and a fixed-rate loan so the payment trade-offs are visible at once. The fixed loan holds one rate and steadily builds equity. The standard ARM starts lower and amortizes, then adjusts at each reset.
The interest-only ARM starts lowest of all because early payments cover interest alone, but it builds no equity during that window and faces a sharper jump when amortization and rate resets begin together. Seeing all three clarifies how much early relief costs in later risk.
Worked example: with loan amount of $350,000, loan term (years) of 30 and fixed rate of 6.75%, the arm & interest-only arm vs fixed rate mortgage shows lowest initial payment of $1,677.08.
- Fixed-rate payment
- $2,270.09
- Amortizing ARM
- $2,042.50
- Interest-only ARM
- $1,677.08
- IO vs fixed gap
- $593.01
The formula
The fixed loan amortizes at one rate for the term. The standard ARM amortizes at index + margin, recalculated within caps at each reset. The interest-only ARM charges balance times the current rate during the IO window, then amortizes the full balance over the shorter remaining term once principal payments start.
- All three loans use the same principal and term so differences reflect structure rather than borrowed amount.
- The interest-only window length is set by the loan; equity does not grow from principal during that period.
- ARM resets depend on future index values that no model can predict, so adjusted figures are scenario-based.
- After the IO period, the interest-only loan amortizes over fewer remaining months, which concentrates the payment increase.
- Property taxes, insurance, and association dues are not included in any of the three payment figures.
Results are estimates for educational purposes and are not financial advice. Confirm exact figures with your lender or a licensed advisor.
Questions about the arm & interest-only arm vs. fixed
Why does the interest-only ARM jump the most when its IO period ends?
It is hit by two changes at once. Principal payments switch on, and they must repay the full balance over fewer remaining years than a fresh loan would have. On top of that, the rate may reset higher at the same time.
Stacking a compressed amortization schedule onto a possible rate increase produces the steepest payment shock of the three loans.
Which option builds equity fastest in the early years?
The fixed-rate loan, because every payment from month one includes principal at a predictable rate. The standard ARM also builds equity but starts with a smaller payment, so early principal reduction is modest.
The interest-only ARM builds no equity from principal during its IO window; your balance only falls once amortization begins, unless your home's value rises independently.
Who is each of these three loans actually suited to?
The fixed loan fits borrowers who value certainty and plan to stay put for many years. The standard ARM fits those expecting to move or refinance within several years and comfortable with some reset risk.
The interest-only ARM suits disciplined borrowers with uneven income who will sell, refinance, or pay down principal before the shock lands.
Is the ARM & Interest-Only ARM vs. Fixed free to use?
Yes. Every calculator on MortgageLoansCalculator is completely free, with no sign-up, login or paywall. Run as many scenarios as you like.
How do an ARM, an interest-only ARM and a fixed-rate loan compare?
A fixed rate gives certainty; a standard ARM trades certainty for a lower start; an interest-only ARM adds a no-principal period for the lowest early payment but the highest reset risk. This calculator lines up all three so the trade-offs are clear.
Adjustable-Rate Mortgage (ARM) Calculator
Project payments through the fixed period and the rate adjustments that follow on an ARM.
ARM vs. Fixed-Rate Mortgage
Compare an adjustable-rate mortgage against a fixed-rate loan across likely rate scenarios.
Interest-Only ARM Calculator
Model the interest-only period of an ARM and the payment shock when amortization begins.
Option ARM Calculator
See how minimum payments on an option ARM can cause negative amortization and a growing balance.
Fixed-Rate vs. Interest-Only Mortgage
Compare a conventional fixed-rate loan against an interest-only mortgage over time.
Fixed-Rate vs. LIBOR ARM
Compare a fixed-rate mortgage with an index-based ARM under rising and falling rate paths.