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We created the ARM mortgage calculator to allow you to estimate and model the monthly payments and interest costs of your adjustable-rate mortgage. As this tool is highly customizable, you can study the different mortgage rate adjustments scenarios that may possibly occur during the repayment term.

In the following, you can learn the adjustable-rate mortgage definition and how does an adjustable-rate mortgage work. Moreover, we also give you further insight into this topic by providing some adjustable-rate mortgage examples and answering the following questions:

  • What is an adjustable-rate mortgage (ARM)?
  • What is the difference between fixed vs. adjustable-rate mortgages?
  • What are the four types of caps that affect adjustable-rate mortgages?
  • What is an advantage of an adjustable-rate mortgage?
  • What are the common types of adjustable-rate mortgages?

Naturally, we also explain how to use the adjustable rate mortgage calculator and customize it individually. You can also turn the tool into any of the following:

Also, you may check our HELOC calculator if you are specifically interested in a home equity line of credit.

What is an adjustable-rate mortgage (ARM)?

An adjustable-rate mortgage is one that applies a variable interest rate throughout the life of the loan. With an adjustable-rate mortgage, or ARM (also a variable-rate mortgage or floating mortgage), the initial interest rate is fixed for a certain period.

After that, the lender reset the interest rate periodically, at yearly or monthly intervals. Borrowers choose an adjustable-rate mortgage when they wish to keep the loan for a limited time and can afford any potential interest increases.

How does an adjustable-rate mortgage work?

A variable rate mortgage has a moving interest rate, which the lender adjusts based on a benchmark rate or index (for example, a rate on short-term U.S. Treasuries, or the Fed Funds rate), plus an additional spread called an ARM margin. When a new interest rate becomes binding, the bank recalculates the monthly payment according to the outstanding balance, keeping the amortization schedule unchanged.

Typically, ARMs have caps limiting the interest rate, and payments can rise per year or over the loan's lifetime. For example, a 10/1 arm mortgage has a fixed rate for ten years and a variable rate for the remaining 20 years.

What are the four types of caps that affect adjustable-rate mortgages?

The following four types of caps may apply to an adjustable-rate mortgage:

  • Initial adjustment caps - The upper limit of the interest rate increase during the first adjustment.
  • Subsequent adjustment caps - These limit the amount your interest rate can increase in one adjustment period after the initial adjustment.
  • Lifetime caps - These limit the amount your interest rate can increase over the life of your loan. Nearly all ARMs have a lifetime cap, according to the Consumer Financial Protection Bureau (CFPB).
  • Payment caps - These limit the amount your monthly payment can increase at each adjustment.

In our adjustable rate mortgage calculator, you can apply lifetime caps on your interest rate.

What is an advantage of an adjustable-rate mortgage? - Adjustable rate mortgage pros and cons

The most apparent advantage of an adjustable-rate mortgage is that ARMs typically have lower initial interest rates than fixed-rate mortgages. Even though the difference might be less than a percentage, it can make a huge difference in interest cost. Since mortgage repayments have an amortization structure, the most significant part of your monthly payment at the beginning covers the interest cost. If you choose an adjustable-rate mortgage, more of your money goes to paying off the principle due to the lower initial interest. This will lead to a faster drop in the remaining balance, which is the base of interest computation.

You may also benefit from an adjustable-rate mortgage if you plan to live in the house you purchase by the mortgage for less time than the mortgage term. For example, if you plan to live in the house for ten years, financed by a 10/1 mortgage, you could save a considerable amount due to the lower interest rate applied for that period.

However, the biggest disadvantage is the unpredictable upward move in mortgage rates due to the changing economic environment. For this reason, it is crucial to evaluate all possible scenarios and their contractual caps and limits before taking an adjustable-rate mortgage. You can easily do it with the help of our ARM mortgage calculator.

What are the common types of adjustable rate mortgages?

There are multiple types of adjustable-rate mortgages, and you can typically distinguish them numerically. The first number indicates how long the initial rate will remain fixed. The second number indicates how often the rate will change. For example:

  • 10/1 ARM - A 10/1 ARM mortgage has a fixed interest rate for the first ten years, adjusting annually over the remaining 20 years.
  • 7/1 ARM - A 7/1 ARM loan has a fixed rate of interest for the first seven years and becomes floating over the remaining 25 years, adjusted annually.
  • 5/6 ARM - A 5/6 ARM loan has a fixed interest rate for the first five years of the mortgage. After that, the rate adjusts every six months over the remaining 25 years.
  • 7/6 ARM - A 7/6 ARM loan has a fixed interest rate for the first seven years of the loan. After that, the interest rate will adjust once every six months over the remaining 23 years.

How to use the ARM mortgage calculator?

Now that you've gotten some insight into adjustable-rate mortgages, it is time to get familiarize yourself with our ARM mortgage calculator. Here is a guide on how to use it to its full potential:

  • Mortgage balance - The original loan amount of your mortgage;

  • Term - The remaining or original mortgage term;

  • Interest rate at the beginning of term - Set the introductory annual interest rate here, which is applied at the beginning of the mortgage term;

  • Compounding frequency (advanced mode) - How the lender computes interest on the principal;

  • Mortgage points (advanced mode) - An upfront fee as a percentage of the new balance - if you want to learn about it more, check our mortgage points calculator

  • Up-front fee (advanced mode) - The upfront fee paid on the mortgage;

  • Annual fee (advanced mode) - The yearly mortgage cost, which is paid monthly (spread over the year);

  • ARM type - You can set one of the following, or you can choose to customize it individually:

    • 10/1 ARM mortgage - The initial interest rate is fixed for ten years then adjusted yearly;
    • 7/1 ARM mortgage - The initial interest rate is fixed for seven years then adjusted yearly;
    • 5/1 ARM mortgage - The initial interest rate is fixed for five years then adjusted yearly; and
    • 3/1 ARM mortgage - The initial interest rate is fixed for three years then adjusted yearly.
  • Adjustments by:

    • Manual setup - You need to set the expected interest rate adjustment that occurs in the given adjustment frequency and the interest cap/floor; and
    • Trend - In this option, you only need to set the expected interest rate at the last period so the interest rates will be computed accordingly in each period;
  • First adjustment after (customized) - Set the term while the initial interest rate remains fixed; and

  • Periods between adjustments - Set the frequency for possible interest rate adjustments.

After setting all relevant parameters, you can immediately see the summary of your adjustable-rate mortgage with the following information:

  • Monthly payment;
  • APR (Annual Percentage Rate);
  • Term;
  • Paid interest; and
  • Total payments.

What's more, you can follow the progression of balance in a chart and check the schedule of the mortgage where you can see the applied interest rate (monthly schedule).


What is the difference between ARM vs fixed mortgage?

In a fixed-rate mortgages, the interest rate is contractually set to a certain level and stays unchanged. At adjustable-rate mortgages, the rate is anchored to a reference index so it can move in either direction (with a certain limit) after a specific period.

What is the expected maximum monthly payment of a 30 year 10/1 ARM?

Let's assume the $300,000 mortgage and 3% interest rate adjusted by 0.5 percentage points with an 8% cap.

The expected maximum monthly payment of a 30 year 10/1 ARM in that case is $1,772 from the 20th year of the mortgage (increased by $507 from $1,265 paid during the first ten years of the mortgage).


You should consider the ARM mortgage calculator as a model for financial approximation. All payment figures, balances, and interest figures are estimates based on the data you provided in the specifications that are, despite our best effort, not exhaustive.

For this reason, we created the calculator for instructional purposes only. Still, if you experience a relevant drawback or encounter any inaccuracy, we are always pleased to receive useful feedback and advice.

Tibor Pál, PhD candidate
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Monthly payment$1,649.89 - $1,831.07
Term20 years
Paid interest$162,983.32
Total payments$412,983.32