ARM Mortgage Calculator

The trade-off behind that tempting low rate

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.