ARM vs. Fixed-Rate Mortgage
A lower ARM rate saves money early but carries reset risk. Compare it against a fixed-rate mortgage to weigh the trade-off.
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How the ARM vs. fixed-rate mortgage calculator works
This comparison runs an adjustable-rate loan beside a fixed-rate loan of the same size and term so you can weigh a lower opening payment against later uncertainty. The ARM side amortizes at its discounted start rate through the fixed period, then adjusts on schedule using index-plus-margin within its caps.
The fixed side keeps one rate and one payment for the whole term. Testing a flat, rising, and falling rate path shows how long the ARM's early savings last and roughly when a sustained climb would erase them.
Worked example: with loan amount of $320,000, loan term (years) of 30 and ARM initial rate of 5.50%, the ARM vs fixed rate mortgage calculator shows saved during the ARM intro period of $21,052.
- ARM initial payment
- $1,816.92
- ARM payment after reset
- $2,186.48
- Fixed payment
- $2,167.79
- ARM lifetime interest
- $444,960
| ARM rate after reset | ARM | Fixed |
|---|---|---|
| 5.50% | $334,093 | $460,405 |
| 6.50% | $388,344 | $460,405 |
| 8.50% | $503,753 | $460,405 |
| 10.50% | $627,092 | $460,405 |
The better choice flips around 8.50% — ARM wins on one side, Fixed on the other.
The formula
Each loan amortizes its balance at its own rate over the term. The ARM payment changes at every reset to index + margin, bounded by the caps; the fixed payment never changes. Comparing cumulative interest and the payment at each reset shows the crossover where the fixed loan becomes cheaper.
How every calculator here computes, what it assumes and how the defaults stay current: our methodology.
- Both loans share the same principal, term, and start date so the difference reflects rate structure, not loan size.
- The ARM's start rate is the discounted teaser rate; real resets depend on future index levels you cannot know in advance.
- Rate scenarios are illustrative paths, not predictions, and actual benchmark moves may differ sharply from any path tested.
- Refinancing, selling, or extra principal payments before the fixed period ends would change the practical comparison.
- Closing costs, points, and mortgage insurance are excluded, though they can shift which option wins.
ARM caps: the worst-case payment on a $350,000 loan
Most new adjustable-rate mortgages are SOFR 5/6 loans: the rate is fixed for 5 years, then resets every 6 months to the 30-day average SOFR plus a margin set at closing. Standard caps are 2/1/5: up to 2 points at the first reset, 1 at each reset after and 5 over the life of the loan. Starting at today's 6.73% 5-year ARM average, this is the highest payment the caps allow, against a 7.18% 30-year fixed at $2,371.02 a month.
| Point in the loan | Highest rate allowed | Highest payment (P&I) | vs. the fixed payment |
|---|---|---|---|
| Years 1–5 (fixed period) | 6.73% | $2,265.44 | −$105.58 |
| First reset (month 61) | 8.73% | $2,696.21 | +$325.19 |
| Reset 2 (month 67) | 9.73% | $2,920.17 | +$549.14 |
| Reset 3 (month 73) | 10.73% | $3,148.09 | +$777.07 |
| Reset 4 (month 79) | 11.73% | $3,379.42 | +$1,008.40 |
This is the ceiling, not a forecast: the rate follows the index and can also fall, usually no lower than the margin. Lenders must disclose this worst case, so check it against your budget before choosing the ARM. Older 5/1 ARMs reset once a year, often with 2/2/5 caps; read the cap numbers on your own Loan Estimate.
Fixed or adjustable: which fits you
In an ARM's name, the first number is the fixed years and the second how often the rate resets afterward: every 6 months in a 5/6 or 7/6, once a year in an older 5/1. On a $350,000 30-year loan at today's averages:
| Fixed-rate | Adjustable-rate (5-year ARM) | |
|---|---|---|
| Rate today | 7.18% | 6.73% |
| Monthly payment (P&I) at the start | $2,371.02 | $2,265.44 |
| Saved in the first 5 years | — | $6,335 |
| After the fixed period | Never changes | Resets every 6 months within 2/1/5 caps |
| If market rates fall | Refinance to capture it (closing costs apply) | Adjusts down on its own at the next reset |
| Usually suits | Staying for many years; budgets that need a known payment | Selling or refinancing before the fixed period ends |
A simple rule: if the fixed period comfortably outlasts how long you expect to keep the loan, the ARM's lower start rate is close to free savings. If you might still be in it at the first reset and could not afford the worst-case payment above, take the fixed rate; you can still refinance if rates drop.
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 vs. fixed-rate mortgage calculator
How many years do I need to keep the loan for an ARM to pay off?
Often the break-even sits near or just past the end of the fixed period, but it depends on the rate gap at origination and how fast rates climb afterward.
If you are confident you will sell or refinance before the first reset, the ARM's lower start rate is close to free savings. The longer you hold past that point, the more rate risk you absorb.
Does a bigger rate gap between the ARM and fixed loan always favor the ARM?
A wider discount on the ARM start rate increases early savings and pushes the break-even further out, which leans toward the ARM. But it does not change the risk that rates rise after the fixed period.
A large gap is most compelling when paired with a short expected holding period, so the savings bank before any reset arrives.
What happens in this comparison if rates fall instead of rise?
In a falling path the ARM looks excellent: it starts lower and then resets even lower, widening its lead over the fixed loan. The catch is that you cannot count on that path.
A fixed loan gives you the option to refinance if rates drop, capturing much of the same benefit while protecting you on the upside if they climb instead.
Is my information saved or shared?
No. Every calculation runs entirely in your browser. We never store, transmit or sell the numbers you enter.
ARM vs fixed-rate — which should I choose?
A fixed rate is better if you will keep the loan for years and want a payment that never changes; an ARM can win if you will sell or refinance before its fixed period ends and want a lower starting rate. This tool compares the payments side by side.
Can I refinance out of an ARM before it adjusts?
Yes. Many borrowers refinance into a fixed loan as the fixed period nears its end. It is not guaranteed, though: you have to qualify again, and refinance closing costs and the rates on offer at that time decide whether it is worth it.
Are ARMs riskier than they were before 2008?
They are more tightly regulated. Caps are standard, lenders must qualify you at a higher payment than the start rate, and the riskiest no-documentation loans are largely gone.
The core risk remains: your payment can rise after the fixed period, up to the lifetime cap.
Sources
- CFPB — Fixed-rate vs adjustable-rate mortgages
- Freddie Mac — Primary Mortgage Market Survey (weekly average rates)
- CFPB — Loan Estimate explainer
How the figures on this site are calculated and tested: methodology · editorial policy.
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Fixed-Rate vs. SOFR ARM
Compare a fixed-rate mortgage with an index-based ARM under rising and falling rate paths.