With mortgage rates no longer on sale, you might be considering options other than the 30-year fixed.
There are a variety of adjustable-rate mortgages (ARMs) offered by banks and lenders that provide a fixed-rate period followed by an adjustable-rate period.
This means you can get the best of both worlds while also obtaining a lower mortgage rate relative to what you’d get on a comparable 30-year fixed.
And these hybrid ARMs can come with really long initial fixed-rate periods, whether it’s 5, 7, or 10 years.
During that time, rates could move lower, allowing for a refinance, or perhaps you’ll move, as the typical American tends to move every six or seven years.
Of course, there’s no guarantee rates will go down (they could go up!), or that you’ll qualify for another mortgage in the future.
So there is some risk associated with an ARM vs. fixed-rate mortgage, which is why you get a discount! But if you know the risks, are comfortable with them, and take the time to shop, you could save a good chunk of money.
ARM vs. Fixed-Rate Mortgage Calculator
Compare an adjustable-rate mortgage against a fixed-rate loan. See what happens to your payment when the ARM resets — including best-case, worst-case, and fully-indexed scenarios.
Results update automatically as you type — no submit button needed.
Loan details
Adjustable-rate mortgage (ARM)
Rate caps — auto-filled based on ARM type, editable
Fixed-rate mortgage
ARM snapshot
Side-by-side comparison
My ARM vs. Fixed-rate mortgage calculator can take some of the guesswork out of the comparison and help you run the numbers for your particular loan scenario.
It factors in typical adjustable-rate mortgage caps automatically and asks for the corresponding mortgage index and lender margin (the fixed markup).
If you know all these details, you’ll be able to get a good overview of fixed vs. adjustable-rate options and what they might cost you.
Such as the loan balance after the fixed period ends, and what the monthly payment at first adjustment will be.
The calculator also provides the worst-case payment on the ARM, when it could go into effect, and the payment differences versus a fixed-rate loan.
That includes payment difference versus the ARM’s initial rate, payment difference at first adjustment, and payment difference vs. worst case payment.
Aside from knowing the difference, it can prepare you for the worst, should your ARM adjust to the maximum allowed, and you’re unable to refinance the mortgage or sell the property beforehand.
Frequently Asked Questions
Are ARM rates lower than fixed-rates?
Yes. You pay more for the safety and security of a fixed-rate mortgage, such as a 30-year fixed. But if mortgage rates don’t go up after you take out your loan, or happen to go down, you could actually lose out by keeping your fixed-rate loan.
Lenders provide a discount for choosing an ARM vs. fixed-rate mortgage. The nice thing is many ARMs still feature a fixed-rate period, which can range from as little as the first three years to 10 years.
How much lower are they?
It depends on the loan program, the lender in question, and also the spread, which can vary over time based on market conditions.Be sure to shop around when considering an ARM because the interest rates can vary tremendously.
Often times, nonbanks (the big name household lenders you’ve heard of) have higher ARM rates compared to actual banks and credit unions. This is because the latter actually keep their loans and can price them more aggressively.
In terms of programs, a 5/6 ARM will be priced the lowest because you only get five years of fixed-rate goodness. Conversely, a 10/6 ARM will be priced the highest, perhaps not much cheaper than a 30-year fixed. That’s because most loans only last a decade before the owner sells or refinances.
Where can I get an ARM?
Most banks and lenders offer ARMs, though a lot of them will just suggest you take out a 30-year fixed since it’s the go-to choice for most homeowners.
However, if ARMs are significantly cheaper and/or you don’t plan to keep your home/mortgage for a long time, it could be more cost-effective to go with something else.
As noted, the big guys often don’t have great ARM pricing, whereas banks and local credit unions can offer massive savings. Take the time to shop, especially if considering an ARM.
When will the loan adjust? And what will the monthly payment be?
It depends on the type of ARM. A 5/6 ARM adjusts in month 61 (after five years), a 7/6 ARM adjusts in month 85, and a 10/6 ARM in month 121. The payment is determined by the fully-indexed rate (index + margin) at that time multiplied by the remaining loan balance. My calculator figures that out for you!
