Transparent method
The formula
Worked example
Example inputs
How to interpret the result
An ARM's introductory rate is genuinely lower, and the calculator's real value is in showing the payment after the first adjustment under the loan's actual cap structure. The number that matters for planning isn't the attractive teaser payment; it's the worst reasonable case the rate caps actually allow.
Before you rely on it
What to check
Run the reset payment at the loan's maximum allowed rate under its caps, not at today's rate continuing unchanged, before deciding an ARM is affordable.
The common error
Where people go wrong with fixed vs. ARM calculator
Budgeting around the ARM's initial payment as if it were fixed for the loan's life. The name says adjustable, and the real affordability test is the payment after the first reset, not the one advertised at closing.
Sensitivity evidence
How loan amount changes the estimated reset payment
| Loan amount | Estimated reset payment | Payment increase |
|---|---|---|
| $320,000 | $2,242 | $375 |
| $360,000 | $2,522 | $422 |
| $400,000worked example | $2,803 | $468 |
| $440,000 | $3,083 | $515 |
| $480,000 | $3,363 | $562 |
Every input, tested
Which input moves the estimated reset payment most
| Input | Tested from | To | Estimated reset payment at each end | Swing |
|---|---|---|---|---|
| Loan amount | $360,000 | $440,000 | $2,522 to $3,083 | $561 (20%) |
| Total term | 22.0 years | 38.0 years | $3,070 to $2,684 | $387 (14%) |
| Introductory rate | 4.8% | 6.8% | $2,529 to $2,836 | $308 (11%) |
| Index at reset | 4.0% | 6.0% | $2,564 to $2,803 | $239 (8.5%) |
| Loan margin | 1.8% | 3.8% | $2,564 to $2,803 | $239 (8.5%) |
| First adjustment cap | 1.0% | 3.0% | $2,564 to $2,803 | $239 (8.5%) |
| Initial fixed period | 4.0 years | 6.0 years | $2,816 to $2,789 | $27 (1.0%) |
Two variables at once
Estimated reset payment by loan amount and introductory rate
| Loan amount \ Introductory rate | 3.8% | 5.8% | 7.8% |
|---|---|---|---|
| $320,000 | $1,813 | $2,242 | $2,293 |
| $360,000 | $2,040 | $2,522 | $2,579 |
| $400,000 | $2,267 | $2,803 | $2,866 |
| $440,000 | $2,493 | $3,083 | $3,152 |
| $480,000 | $2,720 | $3,363 | $3,439 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Loan amount | $400,000 |
| Introductory rate | 5.8% |
| Initial fixed period | 5.0 years |
| Index at reset | 5.0% |
| Loan margin | 2.8% |
| First adjustment cap | 2.0% |
| Total term | 30.0 years |
| Estimated reset payment | $2,803 |
| Payment increase | $468 |
Where the inputs come from
The introductory rate and fixed period come from the ARM offer, such as 5/6 or 7/6. The index at reset is the benchmark rate you assume at the first adjustment; most current ARMs use SOFR. The margin is set by the lender and stays constant, and the first adjustment cap limits how much the rate can rise at the first reset. The loan disclosure lists all of these under the adjustable-rate features.
Using the estimated reset payment in a real decision
A fixed loan suits one who values certainty. Try higher index values to see the worst case up to the cap.
When the result stops applying
The result models only the first reset. Later adjustments can push the rate to the lifetime cap, and the payment is recalculated on the remaining balance. Rates can also fall, lowering the payment. ARMs have periodic and lifetime caps that differ by product, so read the full disclosure.
What to compare it with
Ask how long you will keep the loan, because an ARM only helps if you sell or refinance before the reset or if rates stay low. Check the initial rate advantage, in dollars per month, against the stress-case payment. If the savings are small and the reset payment is much higher, fixed wins. The ARM cap calculator lets you vary the assumptions, and the mortgage refinance calculator shows the cost of getting out of an ARM into a fixed loan later.
People also ask
Frequently asked questions
What does 5/6 ARM mean?
A 5/6 ARM has a fixed rate for the first five years and then adjusts every six months based on an index plus the lender's margin. Older 5/1 ARMs adjusted once a year, which is why the second number matters.
What is the margin?
A fixed number of percentage points added to the index to get the new rate. It does not change after closing.
Can an ARM rate go down?
Yes, if the index falls at a reset date. The rate can drop to the new index plus the margin, down to any floor stated in the note, and the payment falls with it.