ARM vs. Fixed Rate Mortgage Calculator
An ARM starts lower but adjusts after the initial fixed period. A fixed-rate mortgage never changes. Which is cheaper depends almost entirely on how long you stay — this calculator shows the crossover point and total cost for your specific numbers.
Enter your loan amount, fixed rate, ARM details, and how long you plan to stay to see which mortgage costs less over your holding period.
| Year | Fixed Payment | ARM Payment | ARM Rate | Cumulative Fixed Interest | Cumulative ARM Interest |
|---|
ARM vs. Fixed: The Decision That Depends on Your Timeline
The ARM vs. fixed debate is almost entirely a question of how long you'll keep the mortgage. If you'll sell or refinance before the ARM's initial fixed period ends, the ARM's lower starting rate saves real money. If you stay longer and rates adjust upward, the fixed mortgage can be significantly cheaper overall.
ARMs save money in the initial period because they start at a lower rate — typically 0.5%–1.5% below comparable fixed rates. On a $400,000 loan, a 1.25% rate difference means roughly $300/month in savings during the fixed period. Over 5 years, that's $18,000 in interest savings. But if the ARM adjusts to 7.5% while the fixed was 7%, the cost advantage reverses and accumulates in the opposite direction.
The ARM "Type" Notation Explained
ARM names follow a standard format: X/Y, where X is the initial fixed period in years and Y is the adjustment frequency in years (or months). A 5/1 ARM is fixed for 5 years, then adjusts annually. A 7/6 ARM is fixed for 7 years, then adjusts every 6 months. Common types: 3/1, 5/1, 7/1, 10/1. The initial fixed period is what makes the ARM attractive — the longer the fixed period, the less rate risk you take on.
| Holding Period | 5/1 ARM Total Interest | 30-yr Fixed Total Interest | Winner |
|---|---|---|---|
| 3 years | $63,200 | $82,700 | ARM saves $19,500 |
| 5 years | $107,200 | $137,000 | ARM saves $29,800 |
| 7 years | $160,400 | $190,400 | ARM saves $30,000 |
| 10 years | $248,000 | $268,400 | ARM saves $20,400 |
| 30 years (full term) | $601,200 | $558,400 | Fixed saves $42,800 |
ARM Rate Caps: Your Protection Against Rate Shock
ARMs include caps that limit how much the rate can change. The standard cap structure is expressed as three numbers, e.g., 2/2/5: the first cap limits the initial adjustment (2%), the second limits each subsequent adjustment (2%), and the third limits the total lifetime change (5%). A 5/1 ARM starting at 5.75% with 2/2/5 caps could adjust to: 7.75% at year 6, 9.75% at year 7, and never exceed 10.75% over the loan's life. Knowing the caps tells you the worst-case scenario before you sign.
For a plain-language guide to how ARMs work, read how adjustable-rate mortgages work. For the full comparison guide on when to choose each option, see ARM vs. fixed mortgage.
Frequently Asked Questions
What is an ARM mortgage?
An adjustable-rate mortgage (ARM) has a fixed interest rate for an initial period (3, 5, 7, or 10 years), then adjusts periodically based on a market index plus a lender margin. A 5/1 ARM is fixed for 5 years, then adjusts annually. ARMs start lower than fixed rates but carry rate risk after the initial period.
When does an ARM save money over a fixed mortgage?
An ARM saves money when you sell or refinance before the initial fixed period ends — you capture the lower rate during the ARM's cheap window without ever experiencing the adjustment. The longer the initial period, the longer the window. If you'll be in the home less than the ARM's fixed period, an ARM almost always costs less.
What are ARM rate caps?
Rate caps limit how much your ARM rate can change. A 2/2/5 cap structure means: max 2% increase at the first adjustment, max 2% at each subsequent adjustment, and max 5% total over the loan's life. A 5/1 ARM at 5.75% with 2/2/5 caps could never exceed 10.75%, regardless of what rates do.
Is a 7/1 ARM risky?
The 7/1 ARM carries moderate risk — it's fixed for 7 years (longer than a 5/1) before adjusting. The risk is that rates at year 8 may be higher than today's fixed rates. The main protection is planning: if you expect to sell or refinance within 7 years, the risk is minimal. If your timeline is uncertain, a 10/1 ARM or 30-year fixed provides more certainty.
Can I refinance an ARM into a fixed rate?
Yes — refinancing an ARM to a fixed rate before or after it adjusts is common. The cost is typically 2%–5% of the loan balance in closing costs. Whether refinancing makes sense depends on the rate difference and how long you'll stay to recover the closing costs. Use the Refinance Calculator to check the break-even timeline.
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