Fixed vs ARM Calculator

What is a fixed rate vs ARM comparison?

A fixed-rate mortgage sets one interest rate for all 360 payments. On a $400,000 loan at 6.50%, the payment is $2,528.27 and it is still $2,528.27 in month 360; total interest across the life of the loan is $510,178. Nothing about the index, the Fed, or your lender's margin schedule can change it. You are buying certainty, and the price of certainty is whatever the fixed rate happens to be on the day you lock.

An adjustable-rate mortgage prices two numbers instead of one: a fixed introductory rate that holds for the first 5, 7, or 10 years, and a fully indexed rate that takes over afterward. The notation is 5/1, 7/1, or 10/1 — the first figure is the years at the teaser rate, the second is how often the rate adjusts once that period ends, with /6 meaning every six months instead of annually. During the fixed window an ARM is simply a cheaper loan. After it, the rate is index plus margin, bounded by caps.

That makes the comparison a two-variable problem: how long you keep the loan, and where the index goes. Start a 5/1 ARM at 5.75% against a 6.50% fixed and you save $193.98 a month, which is $11,639 over five years. If the fully indexed rate settles at 7.05%, the payment recasts to $2,634.34 and cumulative ARM payments do not overtake the fixed loan until month 170. If the index instead drives the rate to its lifetime cap, the ARM is behind by month 87. Neither outcome is a verdict on the product — both are answers to the same question asked with different inputs. The ARM vs fixed-rate guide works the decision in more detail.

How to use this calculator

1. Enter the home price and down payment. The calculator compares both structures on the resulting loan amount, so the two sides are always like-for-like.
2. Enter how long you plan to stay. This sets the comparison window in months — the single most important input on the page.
3. Enter the 30-year fixed rate. Take the number from our rates page on the day you run it; 6.50% is the benchmark used in every table below.
4. Enter the ARM initial rate. Teasers typically run 0.50% to 1.00% below the fixed rate on the same day.
5. Enter the ARM index rate and the margin. The calculator adds them to produce the fully indexed rate — the number your lender will qualify you against.
6. Read the payment for each structure, the total cost across your stay, and the savings line. Positive savings means the ARM wins inside your window; negative means the fixed rate does.

A realistic set of inputs: home price $500,000, down payment $100,000, stay 7 years, fixed rate 6.50%, ARM initial rate 5.75%, index 4.30%, margin 2.75%. That gives a $400,000 loan, a fixed payment of $2,528.27, an ARM payment of $2,334.29 for the first five years, a fully indexed rate of 7.05%, and a savings line of about $8,126 across your 84 months in the home. The calculator charges the adjusted payment against the original 360-month schedule, a deliberately conservative assumption; recast on the actual remaining balance the adjusted payment is $2,634.34, which widens the 7-year advantage to $9,093 as shown below. Move the stay field to 15 years and watch the savings line cross into negative territory — that is the whole decision in one control.

How the comparison is calculated

Both sides run through the same amortization formula, so the only real differences are the rate you feed it and, for the ARM, the schedule of rate changes.

M = P × [ i (1 + i)ⁿ ] ÷ [ (1 + i)ⁿ − 1 ]

M is the monthly principal-and-interest payment, P is the loan amount, i is the annual rate divided by 12, and n is the number of payments. On the fixed side: i = 6.50% ÷ 12 = 0.005416667, n = 360, and M = $2,528.27. On the ARM side the same formula applies during the fixed window with i = 5.75% ÷ 12 = 0.004791667, giving M = $2,334.29.

The ARM's second phase is where the work is. At each adjustment the lender computes a new rate in three steps:

Fully indexed rate = Index + Margin
New rate = Round( Fully indexed rate ), bounded by the initial cap, the periodic cap, and the lifetime cap

Worked example: a 5/1 ARM adjusting with 2/1/5 caps

Step 1 — index plus margin. The index sits at 4.30% and the note carries a 2.75% margin, so the fully indexed rate is 4.30% + 2.75% = 7.05%. Step 2 — rounding. Most notes round to the nearest 0.125% (some use 0.25%): a sum of 7.18% becomes 7.125%, while 7.05% becomes 7.000%. Because the increment moves the answer either way, this page's tables carry the unrounded sum. Step 3 — caps. With a 5.75% start and 2/1/5 caps, the ceiling at the first adjustment is 5.75% + 2.00% = 7.75%, the ceiling at each later adjustment is the previous rate + 1.00%, and no rate may ever exceed 5.75% + 5.00% = 10.75%. A 7.05% result sits inside all three, so 7.05% applies. Step 4 — recast. At month 60 the balance is $371,049 with 300 payments left; $371,049 at 7.05% over 300 months is $2,634.34, which is $106.07 more than the $2,528.27 fixed payment. Step 5 — the binding case. If the index had run to 6.75% instead, the fully indexed rate would be 9.50% and the initial cap would cut it back to 7.75%; the recast payment becomes $2,802.64, or $468.35 above the ARM's own starting payment. That is what caps do: they do not stop the rate from rising, they only put a number on how fast.

Worked scenarios

All three tables use a $400,000 loan, a 6.50% fixed benchmark, and a 5/1 ARM starting at 5.75%. Cumulative figures are actual payments sent, and the ARM recast is calculated on the remaining balance over the remaining term.

Cumulative payments by time in the home

The ARM leads for as long as its early savings cover its later cost. On the 7.05% path that is $11,639 of savings banked by month 60 against $106.07 extra per month afterward — enough to stay ahead until month 170, about year 14, before finishing $20,182 behind over 30 years. In the worst case the first adjustment alone adds $468.35 a month, the lead is gone by month 87, and the loan ends $272,064 more expensive than the fixed rate. The break-even month is the number to put in your own decision.

Payment path after the fixed period ends

The moderate path costs $106.07 more than the fixed payment for each of the remaining 300 months, which erases the $11,639 banked in the first five years and leaves the ARM $20,182 behind over 30 years ($106.07 × 300 = $31,821 of extra payments). The worst case costs $1,004.17 more than the fixed payment at the lifetime cap ($3,532.44 vs $2,528.27) and totals $782,242 of interest against the fixed loan's $510,178. Run both columns against your own budget: the first one is the expectation, the second is the risk you have to be able to absorb.

Monthly payment at each rate, $400,000 loan

Every 0.125% of rate is worth about $33 a month on a $400,000 loan, so the 0.75-point gap between a 5.75% teaser and the 6.50% fixed benchmark is worth $193.98 a month — but the same 0.75-point gap on the other side of the line costs $200.43 a month. The ARM's entire advantage is the width of that spread during the fixed window and the speed at which it closes afterward.

How ARM terms work

• Introductory rate: The fixed window runs 5, 7, or 10 years — a 5/1, 7/1, or 10/1. It typically sits 0.50% to 1.00% below the same-day fixed rate; at 5.75% versus 6.50% the discount is $193.98 a month on $400,000.
• Index: The published benchmark the loan floats with — SOFR, the prime rate, or a Treasury-derived index. It is the half of the equation you do not control, so identify which index your note uses and how often it is observed.
• Margin: The lender's fixed markup over the index, typically 2.25% to 3.00% and set for the life of the loan. A 2.75% margin is used throughout this page; a 0.75-point margin difference between lenders is worth $200.43 a month on $400,000 at a 6.50% starting point.
• Fully indexed rate: Index plus margin — 4.30% + 2.75% = 7.05% in the example above. Lenders qualify you on this number, not on the teaser, because the teaser is temporary and the indexed rate is not.
• Initial cap: The most the rate may change at the first adjustment. Under a 2/1/5 structure that is 2 percentage points, so a 5.75% start cannot exceed 7.75% in year 6 no matter how far the index has run.
• Periodic cap: The most it may change at any later adjustment — 1 point under 2/1/5, 2 points under 5/2/5. One point of rate is worth about $269 a month on a $400,000 loan at 6.50%, which is exactly what the periodic cap is there to meter out one year at a time.
• Lifetime cap: The absolute ceiling above the initial rate, commonly 5 points. A 5.75% start with a 5-point lifetime cap can never exceed 10.75% — a payment of $3,532.44 on this loan once the cap is reached, and never a dollar more than that.
• Rounding rule: The new rate is rounded to the nearest 0.125% or 0.25% after the sum is taken. Each 0.125% increment is worth about $33 a month on $400,000, so lenders that round in their own favor cost you real money over 300 adjustment-period payments.
• Conversion and exit: Many notes allow a one-time conversion from ARM to fixed, and you can always refinance or sell. Closing costs typically run 2% to 5% of the loan — $8,000 to $20,000 on $400,000 — so treat the exit as an option you may have to pay for.

Fixed vs ARM strategy for 2026

1. Qualify on the fully indexed rate. Run your budget at 4.30% + 2.75% = 7.05% and at the 10.75% lifetime cap, not at the 5.75% teaser. On $400,000 those recast to $2,634.34 and $3,532.44 against a $2,334.29 starting payment — if the second number breaks your budget, the fixed rate is not a preference, it is a requirement.
2. Match the fixed period to your real horizon with a buffer. A 7/1 ARM assumes you exit inside seven years. Add two years of slack for a slow market: if your honest plan is 6 to 8 years, the 7/1 window is tight and a 10/1 or the fixed rate fits better.
3. Negotiate the margin, not just the rate. Teasers are marketing; margin is the contract. Margins run 2.25% to 3.00%, and that 0.75-point spread is $200.43 a month on $400,000 once the loan adjusts — worth more than any closing-cost waiver on the table.
4. Stress-test against the caps before you sign. Take the lifetime-cap payment — $3,532.44 once this loan reaches its 10.75% ceiling — and put it against your income. If it does not fit, you are not choosing an ARM, you are choosing a future payment you have already agreed to make.
5. Keep a funded exit. The ARM plan is really an exit plan. Budget 2% to 5% of the loan for closing costs — $8,000 to $20,000 on $400,000 — and hold it separately, because refinancing or selling in the year everyone else is trying to do the same thing is exactly when cash gets tight.
6. Watch the index the note actually uses. SOFR, prime, and Treasury indices move on different schedules. Knowing the observation dates and the current level tells you whether your next adjustment is likely to be the 7.05% case or the capped case before the servicer's notice arrives.
7. Re-run the comparison each year. A change in your stay estimate, the index, or the fixed-rate market flips the answer. Ten minutes with this calculator annually is cheaper than discovering at year six that the crossover moved toward you.

Common mistakes when comparing fixed and ARM loans

• Comparing the teaser to the fixed rate. A 5.75% ARM against a 6.50% fixed is not a comparison of products, it is a comparison of a 5-year rate and a 30-year rate. Compare 6.50% fixed against the ARM's fully indexed 7.05% — the fixed side wins by $146.39 a month on $400,000 before any risk is priced in.
• Assuming the payment recasts on the original loan amount. It does not. The adjustment recalculates on the balance you actually owe over the payments you actually have left: $371,049 over 300 months at 7.05% is $2,634.34, not the $2,674.66 you would get by recasting $400,000 over a fresh 360 months.
• Ignoring the cap structure while qualifying. A 2/1/5 note and a 5/2/5 note with the same teaser are different loans. The first caps year 6 at 7.75%; the second permits 10.75% immediately. On $400,000 the difference between those two first-year outcomes is $767.20 a month ($2,802.64 versus $3,569.84).
• Planning to refinance or sell before the adjustment and having no margin for error. The 5-year plan works only if values hold and rates cooperate. Closing costs of 2% to 5% — $8,000 to $20,000 on $400,000 — plus a soft market can erase the $11,639 you saved in the fixed window.
• Treating the ARM payment as unknowable. Caps convert an open-ended risk into a specific number: $3,532.44 at the lifetime cap on this example. "I don't know what it will be" is a reason to run the calculation, not a reason to skip it.
• Forgetting that total cost and monthly risk are separate questions. The 7.05% path costs $20,182 more over 30 years and still delivers a payment $106.07 higher than the fixed loan for each of the last 300 months. A cheaper loan you cannot carry through a job change is not the cheaper outcome — the rates page and the refinance calculator help you price both sides.

Frequently asked questions

Should I choose a fixed rate or an ARM? It depends on your horizon. Sell or refinance inside five years and a 5/1 at 5.75% saves $193.98 a month against a 6.50% fixed — $11,639 over that window. Stay past month 170 on the 7.05% path and the fixed rate pulls ahead, finishing $20,182 cheaper over 30 years.

How much can an ARM rate increase? With 2/1/5 caps, at most 2 percentage points at the first adjustment, 1 point at each later adjustment, and 5 points over the life of the loan. A 5.75% start therefore tops out at 7.75% in year 6 and 10.75% forever — $2,334.29 rising to $3,532.44 on a $400,000 loan.

What is a fully indexed rate? The index plus your margin — the rate you actually keep. With the index at 4.30% and a 2.75% margin, that is 7.05%. Lenders qualify you on this figure rather than the teaser because the teaser ends after 5, 7, or 10 years and the indexed rate is what governs the remaining payments.

When does an ARM adjust? After the fixed window — 60, 84, or 120 months for a 5/1, 7/1, or 10/1 — and then every 12 months, or every 6 months on a /6 note. On a 5/1 starting at 5.75%, the first reset falls in month 61 and recasts the payment on the $371,049 balance then outstanding.

Is the adjusted payment based on my original loan amount? No. The lender recalculates using the current balance over the remaining term. $371,049 at 7.05% with 300 months left is $2,634.34 a month, while the same rate applied to a fresh $400,000 over 360 months would be $2,674.66 — a $40.32 difference that compounds over 300 payments.

What is the break-even point? On these numbers the ARM stays ahead of the 6.50% fixed until month 170 if the rate adjusts to 7.05%, and until month 87 if the caps bind immediately. Before month 87 the ARM has banked $11,639 of savings; after it, the fixed rate is cheaper every month you keep the loan.

Can I convert an ARM to a fixed-rate loan? Many notes permit a one-time conversion, and refinancing is always available. Both paths cost money: closing costs typically run 2% to 5% of the loan, or $8,000 to $20,000 on $400,000. Ask about the conversion right and its fee before closing, when you still have leverage to negotiate.

Related calculators

• ARM Mortgage Calculator — model each adjustment, cap, and recast on its own.
• 30-Year Mortgage Calculator — the fixed-rate baseline with a full amortization schedule.
• Mortgage Rates — same-day fixed and ARM pricing to feed the inputs.
• ARM vs Fixed-Rate Mortgage — the long-form decision framework with break-even tables.
• 5/1 ARM vs 7/1 ARM — two extra years of fixed window, priced.
• Refinance Calculator — what an exit from either structure would cost you.