An adjustable-rate mortgage (ARM) starts with a low fixed rate, then resets to market rates after a few years. This calculator shows your initial payment, what it could jump to after the first adjustment, and the "payment shock" — so you know the risk before you sign.
Adjustable-rate payment & shock
An adjustable-rate mortgage is a bet. In exchange for a lower rate during an introductory fixed period — typically three, five, seven, or ten years — you accept the risk that your rate, and therefore your payment, will change when that period ends. The naming convention tells the story: a "5/1 ARM" is fixed for 5 years, then adjusts once a year after that; a "7/6 ARM" is fixed for 7 years, then every 6 months. The initial rate is usually lower than a comparable 30-year fixed loan, which is what makes ARMs attractive to buyers who expect to move, refinance, or see their income rise before the reset hits.
The danger lives in that reset. When the fixed period ends, your rate is recalculated as an index (a benchmark market rate) plus a fixed margin set by your lender, and your remaining balance is re-amortized over the years left on the loan. If market rates have climbed, your payment can jump sharply — the "payment shock" this calculator highlights. ARMs come with caps that limit how much the rate can move at each adjustment and over the life of the loan, but even capped increases can add hundreds of dollars to a monthly payment. The 2008 housing crisis was fueled in part by borrowers who could afford the teaser payment but not the reset.
So who should consider one? ARMs can genuinely make sense if you're confident you'll be out of the loan before it adjusts — a planned move in a few years, an expected refinance, or a short ownership horizon. They're far riskier if you intend to stay put long-term and would struggle with a higher payment. The honest way to evaluate one is to look squarely at the worst case: assume the rate adjusts upward and ask whether you could still comfortably make that payment. This tool does exactly that by letting you set the post-adjustment rate and comparing the two payments side by side.
A 5/1 ARM is fixed 5 years, then adjusts yearly. The first number is the fixed period; the second is how often it resets.
Could you afford the payment if the rate jumps? If not, the low teaser rate is a trap, not a deal.
ARMs shine when you'll move or refinance before the fixed period ends. For long-term holds, fixed is safer.
An adjustable-rate mortgage fixes the rate for an introductory period — five years in a 5/1 ARM — and then resets periodically against an index plus a margin. The introductory rate is lower than a comparable fixed rate, which is the entire appeal, but the reset is where the risk sits. Caps limit the damage: a typical 2/2/5 structure allows a 2-point rise at first adjustment, 2 points at each subsequent one, and 5 points over the life of the loan. The worst case is therefore knowable in advance, and anyone considering an ARM should compute the payment at the lifetime cap rather than at the teaser rate.
Intro payment: M = P × [ i(1+i)^n ] ÷ [ (1+i)^n − 1 ] at the intro rate over the full termAt reset: recompute on the REMAINING balance over the REMAINING termNew rate = index + margin, subject to capsCaps written as initial / periodic / lifetime, e.g. 2/2/5where:
Assumptions: Assumes the rate rises to the cap at first reset, which is the prudent planning case rather than a prediction. Some ARMs also carry payment caps that can cause negative amortization; check whether the balance can grow.
A $420,000 loan at an introductory 5.9%, resetting after five years with a 2.5-point rise.
Result$2,491.17 for five years, then $3,116.88 — up $625.71
The ARM saves about $191 a month for five years, roughly $11,500 in total, then costs $434.51 a month more than the fixed alternative. It makes sense only if you are confident of selling or refinancing before the reset — and refinancing is not guaranteed, since it depends on rates and your credit at that future date.