Overview
A fixed-rate mortgage keeps the same interest rate for the entire loan term, giving you predictable payments. An adjustable-rate mortgage (ARM) starts with a lower introductory rate that adjusts periodically based on market conditions, which means your payment can go up or down.
The Mortgage Calculator lets you estimate payments at any fixed rate. The ARM vs Fixed Mortgage Comparator runs a detailed comparison showing how an ARM's changing rate affects your total cost compared to a fixed-rate loan.
Key Differences
**Rate stability:** Fixed rates never change. ARM rates adjust after the introductory period (typically 3, 5, 7, or 10 years).
**Initial rate:** ARMs start 0.5-2% lower than comparable fixed rates. This lower initial rate means lower payments during the introductory period.
**Risk:** Fixed-rate mortgages carry no interest rate risk. ARMs can increase significantly after the intro period, potentially raising payments by hundreds per month.
**Rate caps:** ARMs have caps limiting how much the rate can increase per adjustment period and over the life of the loan, providing some protection.
**Best for:** Fixed rates suit long-term homeowners who value predictability. ARMs suit buyers who plan to sell or refinance within the introductory period.
When to Use the Mortgage Calculator
- You want to lock in a fixed rate and need to calculate your payment - You are comparing fixed-rate loans across different terms (15, 20, 30 years) - You value payment predictability and plan to stay in your home long-term - You want to see the full amortization schedule at a single rate - You are budgeting conservatively and want to know your exact payment for the life of the loan
When to Use the ARM vs Fixed Mortgage Calculator
- You are considering an ARM and want to see best-case and worst-case scenarios - You plan to sell or refinance within 5-7 years and want the lower initial ARM rate - You want to compare the total cost of a 5/1 ARM versus a 30-year fixed over your expected ownership period - You need to understand how rate caps and adjustment intervals affect your payment over time - You want to calculate the break-even point where an ARM starts costing more than a fixed-rate loan
Frequently Asked Questions
Q: When does an ARM beat a fixed-rate mortgage? A: An ARM saves money if you sell or refinance before the introductory rate expires. If you keep the ARM past the intro period and rates rise, you could pay more than a fixed-rate loan.
Q: What does 5/1 ARM mean? A: The first number is the introductory fixed period in years. The second is how often the rate adjusts after that. A 5/1 ARM has a fixed rate for 5 years, then adjusts annually.
Q: Can I refinance out of an ARM before it adjusts? A: Yes, many ARM borrowers plan to refinance into a fixed-rate loan before the adjustment period begins, though this depends on future rates and your financial situation.
Q: How high can an ARM rate go? A: Most ARMs have a lifetime cap, typically 5-6% above the initial rate. A 3% introductory ARM with a 5% cap could eventually reach 8%, though it cannot exceed that.
Explore Similar Tools
- Refinance Optimizer - Mortgage Affordability Calculator - Mortgage Payoff Calculator - Biweekly Mortgage Pro