ARM vs. Fixed Rate Mortgage

A fixed rate mortgage has the same payment for the entire term of the loan. An adjustable rate mortgage (ARM) has a rate that can change, causing your monthly payment to increase or decrease. Use this calculator to compare a fixed rate mortgage to a Fully Amortizing ARM.
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ARM vs. Fixed Rate Mortgage
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Definitions

Fixed Rate Mortgage

A Fixed Rate Mortgage has the same interest rate and monthly payment throughout the term of the mortgage.

Fully Amortizing ARM

This is the most common type of ARM, with a typical term of 30 years. During the initial period, the interest rate is fixed. After the initial period, the interest rate and monthly payment may adjust annually. Fully Amortizing ARMs have interest rate cap - there's a maximum amount the rate may change per adjustment, and a maximum amount the rate may change over the life of the loan.

Below is a list of the most common types of Fully Amortizing ARMs.

Common Adjustable Rate Mortgages
ARM TypeMonths Fixed
10/1 ARMFixed for 120 months, adjusts annually for the remaining term of the loan.
7/1 ARMFixed for 84 months, adjusts annually for the remaining term of the loan.
5/1 ARMFixed for 60 months, adjusts annually for the remaining term of the loan.
3/1 ARMFixed for 36 months, adjusts annually for the remaining term of the loan.
Mortgage amount

Expected balance for your mortgage.

Term in years

The number of years over which you will repay this mortgage. The most common mortgage terms are 15 years and 30 years.

Expected adjustment

The annual adjustment you expect in your ARM, after the initial period ends. The range for this calculator is minus 3% to plus 3%. Use a negative value if you believe interest rates will decrease, a positive value if you believe they will increase.

Interest rate

Annual interest rate for each mortgage type. Typically an ARM will have a lower initial interest rate than a fixed rate mortgage.

Months rate fixed

This is the number of months the rate is fixed for an ARM. During this period the interest rate and the monthly payment will remain fixed. The rate will then adjust annually by the amoount entered in the "Expected Adjustment" field.

Interest rate cap

This is the maximum interest rate for the life of this mortgage. The mortgage's interest rate will never exceed the interest rate cap.

Monthly payment

Monthly principal and interest payment (PI) for the Fixed Rate Mortgage and the Fully Amortizing ARM.



Sunmark Federal Credit Union
1187 Troy Schenectady Road
Latham, NY

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.