ARM vs Fixed Calculator
Compare an adjustable-rate mortgage with a fixed one, including the worst case.
Details
Fixed for the first 5 years
ARM saves you over the first 5 years
$15,780
Fully indexed rate
6.75%
Highest possible rate
11%
Break-even
Never
ARM interest over 7 yrs
$165,585
Fixed interest over 7 yrs
$188,131
ARM saves
$22,546
This compares an adjustable-rate mortgage against a fixed one over the same loan, showing payments during the fixed period and after it adjusts.
It gives both the saving while the intro rate lasts and the worst-case payment once the caps are applied.
ARM vs fixed-rate mortgages
A fixed-rate mortgage keeps the same rate and the same payment for the whole term. An adjustable-rate mortgage, or ARM, starts lower for a set number of years and then resets periodically to whatever the market says.
The trade is straightforward: you take a lower rate now in exchange for accepting rate risk later. Whether that is sensible depends almost entirely on how long you expect to keep the loan.
The names encode the schedule. A 5/1 ARM is fixed for 5 years then adjusts once a year. A 7/6 ARM is fixed for 7 years then adjusts every 6 months. The first number is what protects you; the second is how often the risk arrives after that.
The caps set your worst case. A 5.5% start with 2/2/5 caps can reach 7.5% at the first adjustment and 10.5% at most over the life of the loan.
What to enter
- Loan amount and term
- The same for both options, so the comparison isolates the rate.
- Fixed rate
- The rate on the fixed-rate option. It is normally higher than the ARM's intro rate, which is the whole point of the comparison.
- ARM intro rate and period
- The starting rate and how many years it lasts. The 5 in a 5/1 ARM.
- Rate caps
- Quoted as three numbers, such as 2/2/5: the maximum first adjustment, the maximum for each later adjustment, and the lifetime maximum above the start rate.
- How long you will keep the loan
- The single most important input. Selling or refinancing before the first adjustment means the rate risk never reaches you.
The two options side by side
- Fixed rate
- Same payment for 30 years. Higher starting rate. No risk, and no benefit if rates fall unless you refinance.
- ARM
- Lower starting rate for the intro period. Payment can rise sharply afterwards, up to the caps.
- Best case for an ARM
- You are confident you will sell or refinance before the first adjustment, and the saving is meaningful.
- Best case for a fixed rate
- You plan to stay long term, or a higher payment would genuinely strain your budget.
What this assumes
The post-adjustment rate is unknowable. Any figure past the intro period is a scenario, not a forecast.
Refinancing later is not guaranteed. It depends on rates, your credit and the property's value at that time.
How to calculate the cost of an ARM against a fixed rate
Compare three numbers: the payment now, the payment at the worst case, and how long the saving takes to be wiped out.
- lifetime cap
- The third number in a 2/2/5 structure
- worst-case rate
- The most you can ever be charged on that loan
Work out both payments at the starting rates. The gap is your monthly saving during the intro period.
Multiply by the intro period. That is the total saving, and it is the buffer you have against everything that follows.
Work out the worst-case payment. Add the lifetime cap to the intro rate and recalculate. Ask whether you could afford that payment.
Find the break-even. Divide the total saving by the extra monthly cost at the higher rate. That is how many months of a raised rate it takes to erase the gain.
See a worked example: a 5/1 ARM against a 30-year fixed on $320,000
- Loan
- $320,000 over 30 years
- Fixed
- 6.5%
- ARM
- 5.5% for 5 years, caps 2/2/5
Fixed payment: $2,023 a month.
ARM payment during the intro period: $1,817 a month.
Saving: $206 a month, so $12,342 over the five fixed years.
Worst case at 10.5%: after five years the balance is $295,874, and repaying that over the remaining 300 months costs $2,794 a month, which is $771 more than the fixed payment.
Break-even: $12,342 ÷ $771 is about 16 months. Sixteen months at the worst-case rate wipes out five years of savings.
Save $12,342, then risk $771 a month
Frequently asked questions
The rate is fixed for 5 years, then adjusts once every year after that. A 7/6 ARM is fixed for 7 years and then adjusts every 6 months.
The first number is your protected period. The second tells you how often the rate can move once that protection ends.
The caps set the ceiling, quoted as three numbers such as 2/2/5: at most 2% at the first adjustment, at most 2% at each later one, and at most 5% above the starting rate over the life of the loan.
A 5.5% ARM with 2/2/5 caps can reach 10.5%. On a $320,000 loan that takes the payment from $1,817 to about $2,794 once the remaining balance is recast. Work that figure out before signing, not after.
When you are genuinely confident the loan will be gone before the first adjustment. A short assignment, a planned move, or a property you intend to sell within the intro period.
It also depends on the gap being worth it. If the ARM is only a quarter percent cheaper, you are accepting real risk for very little.
That is the usual plan, and it is exactly the plan that failed for many borrowers in 2008.
Refinancing needs rates to be workable, your credit to hold up, and the property to appraise high enough. None of those are within your control five years out. Treat refinancing as a hope, not a strategy.
Most US ARMs now use SOFR, the Secured Overnight Financing Rate, having moved off LIBOR. Your rate becomes that index plus a fixed margin set in your loan documents.
The margin does not change; the index does. Ask what the margin is, because it tells you what your rate would be today if the loan adjusted immediately, which is a more useful reference point than the intro rate.
Problems people actually run into
Comparing the intro rate against the fixed rate and stopping there
The intro rate is the number lenders lead with, and it makes the ARM look straightforwardly cheaper. It only describes the first few years.
The comparison that matters is three-way: the payment now, the payment at the cap, and how many months at the higher rate it takes to erase the saving. In the example above it takes 16 months to erase 5 years.
Choosing an ARM to afford a more expensive house
The lower intro payment stretches your qualifying amount, which makes it tempting to use an ARM to reach a house that a fixed rate would not support.
That inverts the logic. An ARM should be chosen by someone who could comfortably afford the fixed payment and expects to be gone before adjustment, not by someone who needs the lower payment to buy at all.
Results are estimates for general information only and are not professional financial, medical, or legal advice. Read our full disclaimer.
Last updated: September 4, 2026