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Adjustable Rate Mortgage Calculator

Adjustable Rate Mortgage Calculator

Calculator developed by
Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Use our Adjustable Rate Mortgage Calculator to determine your initial mortgage payment, potential future payments and worst case scenario for an adjustable rate mortgage (ARM). Your mortgage rate and monthly payment can change and potentially increase significantly with an adjustable rate mortgage and you can use this calculator to understand what your rate and payment may be in the future.  We encourage you to use this calculator to evaluate multiple scenarios to understand if an ARM is the right mortgage option for you.

Watch our Adjustable Rate Mortgage Calculator "How To" video

Inputs

Indicates the size of mortgage you would like to obtain
Please Enter Mortage Amount
The length, in years, of the mortgage. The most common mortgage term is 30 years
Please Select Mortgage Term (Years)
Initial time period for an ARM during which the interest rate is fixed and cannot change. The fixed rate period is typically 3, 5, 7 or 10 years
Please Select Fixed Rate Period
The current fixed period interest rate for a 5/1 ARM is approximately 3.250%
Please Select Fixed Period Interest Rate
Determines how frequently your interest rate adjusts during the adjustable rate period of the mortgage. The adjustment period is typically every year (annual) or every six months (semi-annual)
Please Select Adjustment Period
The index is an underlying interest rate that is one of two components of the fully-indexed rate. Lenders typically use the 1 year LIBOR or 1 Year Treasury Note as the ARM index
Please Select ARM Index
The current value of the ARM index. The value of the index can change over the term of the mortgage. The 1 year LIBOR is currently 1.891% and the 1 year Treasury note yield is 1.754%
Please Enter ARM Index (%)
The second of two components used to calculate the fully-indexed rate. The margin is a set interest rate amount that does not change over the term of the loan. The ARM margin is typically 2.0% - 2.5%
Please Select ARM Margin
A cap that limits the change in interest rate for the initial adjustment period following the fixed rate period
Please Select Initial Adjustment Cap
A cap that limits the change in the fully-indexed rate in any single adjustment period following the initial adjustment period
Please Select Adjustment Cap
A cap that limits the maximum increase in interest rate over the term of the mortgage
Please Select Life Cap
The type of mortgage your looking to obtain
Please Select Mortgage Type
Submit Valid Info to Compare Lenders and Save Money!When you provide valid personal info we may connect you with lenders which enables you to compare mortgage proposals and find the mortgage that is right for you. Click calculator for a version of this calculator that does not require personal info
 
Please Enter Your First & Last Name
Please Enter a Valid First Name
Please Enter a Valid Last Name
 
Please Enter Your Phone Number
Please Enter a Valid Phone
Please Enter Your Email
Please Enter a Valid Email
Your credit score to the best of your knowledge
Please Select Credit Score

Outputs

Your monthly mortgage payment during the initial fixed rate period of the mortgage
Current Fully-Indexed Rate Scenario
Current fully-indexed rate based on the current value of the ARM index and margin. This is the value of the fully-indexed rate today, the value of the fully-indexed interest will likely change in the future
Initial mortgage payment during the adjustable rate period of the mortgage. Calculated based on the current fully-indexed rate
Total interest expense over the term of the mortgage based on using the current fully-indexed rate to calculatethe monthly mortgage payment throughout the entire adjustable rate period of the mortgage
Worst Case Scenario
The maximum interest rate possible at the beginning of the adjustable rate period
Initial mortgage payment during the adjustable rate period of the mortgage; calculated based on the maximum interest rate possible at the beginning of the adjustable rate period
The maximum possible interest rate over the life of the mortgage. Determined by the life cap of the mortgage
The first month when the maximum possible interest rate can be used to calculate the monthly mortgage payment. Determined by adjustment cap and life cap
Monthly mortgage payment based on the maximum possible interest rate over the life of the mortgage and the mortgage balance at that time
The worst case scenario -- total interest expense over the term of the mortgage calculated based on reaching the maximum interest rate as soon as possible

How Our Adjustable Rate Mortgage Calculator Works

Adjustable Rate Mortgages have an initial fixed rate period when your interest rate and monthly payment remain constant.  Following the fixed rate period, your mortgage rate and payment are subject to change on an annual or semi-annual basis, depending on the adjustment period for your loan.  ARMs are relatively complicated and our Adjustable Rate Mortgage Calculator factors in all important loan terms to enable you to evaluate multiple scenarios. Our calculator uses the following inputs:

Mortgage Term.This is the length of your mortgage.  Most ARMs have 30 year terms.

Fixed Rate Period.  This is the initial period of the loan when your interest rate and monthly payment are fixed and do no change.  The fixed rate period is usually three, five, seven or ten years.

Fixed Period Interest Rate.  This is your mortgage rate during the fixed rate period of the loan.  The lower your fixed period rate, the lower your initial monthly payment.

Adjustment Period.  This determines how frequently your loan adjusts during the adjustable rate phase of the mortgage. Most ARMs adjust annually or every six months.

ARM Index.  This is an interest rate such as treasury note yield that is one of two factors that determines your fully-indexed rate, which is your interest rate during the adjustable rate period of the mortgage.  The ARM index changes based on fluctuations in the economy and other factors.

ARM Margin.  This margin is added to the ARM index to calculate the fully-indexed rate.  The ARM margin is a set when your loan closes and does not change.

Initial Adjustment Cap.  This is how much your mortgage rate can increase when it first adjusts after the fixed rate period expires.  The initial adjustment cap is usually 2% or 5%.

Subsequent Adjustment Cap.  This is how much your mortgage rate can change at any adjustment period following the initial adjustment.

Life Cap. This is the maximum amount your mortgage rate can increase over the course of an ARM. The fixed period interest rate plus the life cap equals the maximum mortgage rate you may pay with an adjustable rate mortgage.

Our calculator enables you to understand numerous scenarios for an ARM including the following:

Initial Monthly Payment.  Understand your estimated monthly payment during the initial fixed rate period of the loan.  This is the payment you make immediately after your loan closes for a set number of years, depending on your fixed period interest rate and length.

Current Fully-Indexed Rate Scenario. The calculator enables you to review the current fully-indexed rate and what your monthly payment is based on this rate.  The fully-indexed rate changes over time but this output enables you to understand what your payment may be when the loan starts adjusting. You can also determine total interest expense for an ARM based on applying the fully-indexed rate for the entire adjustable rate period of the loan.

Worst Case Scenario.  The final scenario the calculator shows you is the worst case scenario for an adjustable rate mortgage, when your interest rate and monthly payment increase as much as possible as quickly as possible.  The calculator also determines the maximum interest rate at the first adjustment period and over the life of the mortgage. You can also understand the monthly payments based on these interest rates so you can understand the potential for payment shock with an ARM.

Although this scenario is relatively unlikely our Adjustable Rate Mortgage Calculator enables you understand all of the potential outcomes for an adjustable rate mortgage, both positive and negative.

What Borrowers Should Know About Adjustable Rate Mortgages (ARMs)

1

Adjustable Rate Mortgage Basics

With an adjustable rate mortgage (ARM) your interest rate and monthly payment are fixed for the first one, three, five, seven or ten years of the loan and then subject to change and potentially increase annually or semi-annually over the remainder of the loan term.  ARMs are often referred to as 3/1, 5/1, 7/1 or 10/1 ARMs with the first number indicating the length of the initial fixed rate period and the second number indicating how frequently the interest rate can change during the adjustable rate period.  For example, with a 7/1 ARM, the interest rate and monthly mortgage payment are fixed for the first seven years of the loan and then subject to change on an annual basis for the remaining 23 years of the mortgage.  Most adjustable rate mortgages have 30 year loan terms.       

2

The Interest Rate for an Adjustable Rate Mortgage

The interest rate for an adjustable rate mortgage during the initial fixed rate period is set by the lender based on market conditions and negotiations with the borrower.  The interest rate during the adjustable rate period is called the fully-indexed rate and is determined by adding the ARM index to the ARM margin.  The ARM margin is a set interest rate, usually between between 2.0% and 3.0%, that does not change over the course of your mortgage.  The ARM index is an underlying interest rate, such as LIBOR or the treasury rate, that fluctuates based on economic factors.  Because you add the index to the margin to determine your mortgage rate, if the ARM index increases, your mortgage rate increases but if the index decreases, your rate goes down.  The fully-indexed rate is used to calculate your monthly mortgage payment for an ARM so an increase in that rate increases your payment.  ARMs use adjustment caps that limit the increase in interest rate at the first adjustment period, subsequent adjustment periods and over the life of the mortgage.  The life cap for an adjustable rate mortgage is usually 5.0%, so if your initial interest rate is 2.750%, the maximum interest rate you could pay over the life of the loan is 7.750%.  With our Adjustable Rate Mortgage Calculator, you can use different inputs for the ARM margin and index as well as the adjustment and life caps to evaluate numerous scenarios for an ARM.  

3

Advantages of an Adjustable Rate Mortgage

Advantages of an ARM include a lower initial interest rate as compared to a fixed rate mortgage and lower initial monthly mortgage payment.  The lower initial payment and interest rate also mean that borrowers can typically afford a larger mortgage with an ARM.   Use our ARM Calculator to determine your lower initial payment with an ARM.  Adjustable rate mortgages can also be a good option for borrowers in a high interest rate environment if you think mortgage rates will go down in the future.  In that scenario you pay a lower interest rate initially and then you benefit further when your interest rate and payment decline if rates drop in the future.  Predicting interest rates is highly challenging and exposes borrowers to significant risk.

4

Disadvantages of an Adjustable Rate Mortgage

Disadvantages of an adjustable rate mortgage include the possibility that your mortgage rate and monthly payment spike in the future.  With some ARMs your interest rate can increase by 50% or more at any adjustment period which would cause your mortgage payment to increase significantly.  In general, ARMs are better suited for borrowers with a higher tolerance for risk or who are going to own their home for a shorter period of time (less than the length of the fixed rate period of the loan).  Borrowers who value peace of mind and certainty should avoid the potential risks associated with an ARM.  By presenting the worst case scenario, our calculator quantifies the disadvantages of an ARM.

5

Payment Shock Can Hurt

No one likes to think about the worst possible outcome but borrowers should understand possible payment shock for an ARM.  In many cases the interest rate for an ARM can increase up to 5% over the course of the loan.  So if your initial interest rate is 3.5% and the life cap for your loan is 5.0%, then your maximum rate could be as high as 8.5%, which is more than double your starting rate.  Although a lot of things have to go wrong, it is important to be aware of the potential for a significant and sudden increase in your interest rate and how your payment could spike with an adjustable rate mortgage.  Understanding how an ARM works helps you prevent payment shock and better manage your finances.

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Current Adjustable Rate Mortgage (ARM) Rates as of October 19, 2019
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.
While we pride ourselves on the quality and breadth of the FREEandCLEAR mortgage calculators please note that they should be used for informational purposes only. Our calculators rely on assumptions by us and inputs and assumptions provided by you, which may be inaccurate. The outputs from our calculators are estimates only and should not be used as the sole basis for making any financial decisions. Always consult multiple financial professionals when determining the mortgage size and program that is appropriate for you.

More FREEandCLEAR Mortgage Resources

Mortgage Guides

How an Adjustable Rate Mortgage (ARM) Works

Review our in-depth explanation of how an adjustable rate mortgage works including key terminology, borrowers benefits as well as informative charts and examples

Resources

Downside of an Adjustable Rate Mortgage (ARM)

Understand the risks of an adjustable rate mortgage (ARM) including potential payment shock if interest rates spike

Programs

What Mortgage Program is Right for Me?

Review the pros and cons of adjustable rate, fixed rate and interest only mortgages to determine the mortgage program that is right for you

Interest Rates

Adjustable Rate Mortgage Rates

Review adjustable rate mortgage rates in your area based on initial interest rate, discount points, credit score and other inputs.  Comparing ARM mortgage rates from multiple lenders enables you to find the mortgage with the best terms 

Mortgage Expert Insights

Pros and Cons of an Adjustable Rate Mortgage

Understand the positives and negatives of an adjustable rate mortgage to understand if it is the right financing option for you

Sources

Adjustable Rate Mortgage: https://www.consumerfinance.gov/ask-cfpb/for-an-adjustable-rate-mortgage-arm-what-are-the-index-and-margin-and-how-do-they-work-en-1949/

About the calculator developer

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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