ARM Mortgage Calculator
An adjustable-rate mortgage (ARM) locks a low rate for an intro period — typical 5/1, 7/1 or 10/1 structures — and then resets to a market-linked rate every year. This calculator shows two numbers that matter: what you pay during the fixed years, and what you would pay if the rate jumps to your stress-test assumption at the first adjustment. The gap between them is the ARM risk in dollars.
How to model an ARM
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1
Enter loan amount and term
Usually the full principal after down payment, amortised over 30 years.
-
2
Set the intro rate and fixed period
The teaser rate (e.g. 5.5%) that applies during the fixed years (5, 7 or 10).
-
3
Set a stress-test adjusted rate
Use the current index plus the margin, or the lifetime cap — whichever you want to see.
-
4
Read both payments and the balance at reset
The calculator amortises the intro period, then re-amortises the remaining balance at the new rate over the remaining term.
Reading an ARM quote
ARM products are written as initial-period / adjustment-frequency. A 5/1 ARM is fixed for 5 years then adjusts every 1 year. A 7/6 ARM is fixed for 7 years then adjusts every 6 months (now standard under SOFR indices).
| Product | Fixed years | Adjusts every | Typical use |
|---|---|---|---|
| 5/1 ARM | 5 | 1 year | Buyers planning to sell or refi within 5 years |
| 7/1 ARM | 7 | 1 year | Same, longer runway |
| 10/1 ARM | 10 | 1 year | Long intro, smaller discount vs 30-yr fixed |
| 5/6 ARM | 5 | 6 months | Modern SOFR-indexed loans |
Rate caps
Most ARMs carry a cap structure written as initial/periodic/lifetime, e.g. 2/2/5. That means:
- Max 2% jump at the first reset
- Max 2% jump at each subsequent reset
- Max 5% over the starting rate, ever
Plug the lifetime cap into the adjusted-rate field to see the worst-case payment.
The real question
The ARM is only cheaper than a fixed loan in the months you hold it at the intro rate. If rates are flat or falling when your fixed period ends, you win. If they have risen, the payment shock can be brutal. Always calculate the break-even horizon before signing.
Frequently Asked Questions
New ARMs in the US are indexed to the 30-day Average SOFR (Secured Overnight Financing Rate) published by the New York Fed. LIBOR-indexed ARMs were phased out in 2023.
Reset rate = index + margin, subject to the caps in your note. The margin is fixed for the life of the loan (typically 2.25% to 3.00%); the index moves with the market.
Yes — after each adjustment the remaining balance is spread over the remaining term at the new rate, so payments change but the loan still pays off on schedule.
When the discount on the intro rate times the months you will actually hold the loan exceeds the cost of any rate jumps after. For a 5-year hold with a 1% discount, an ARM almost always wins.
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