Free ARM vs Fixed Calculator

ARM vs. Fixed-Rate Mortgage Calculator

Compare an adjustable-rate mortgage against a fixed-rate loan — see monthly savings, the exact break-even point, worst-case ARM scenarios, and total costs year by year.

6.41%
30-yr fixed avg
Freddie Mac PMMS
5.90%
5/1 ARM avg
Freddie Mac PMMS

ARM vs Fixed Calculator

Loan Details

Loan Amount
$
Loan Term

Fixed-Rate Mortgage

Fixed Interest Rate 30-yr avg: 6.41%
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Adjustable-Rate Mortgage (ARM)

ARM Type
Fixed for 7 years, then adjusts annually
Initial ARM Rate lower than fixed
%
Expected Rate After Adjustment your forecast
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Initial Cap
%
Periodic Cap
%
Lifetime Cap
%
Worst case: 5.9% + 5% cap = 10.90%

Enter your loan details to compare ARM vs. Fixed mortgage costs

ARM vs. Fixed: When to Choose Each

Neither ARM nor fixed is universally better — it depends entirely on how long you keep the loan and where rates go. Here's a scenario guide:

Your SituationBest ChoiceReason
Selling in 3–5 yearsARM winsCapture the lower rate, sell before adjustment
Refinancing likely in 5–7 yrsARM likelyLower rate now; refi to fixed if rates drop
Staying 10+ yearsFixed saferPayment certainty; ARM risk compounds over time
Rates expected to fallARM winsDouble benefit: lower initial rate + lower adjusted rate
Rates expected to riseFixed winsLock in today's rate before increases compound
Jumbo loan ($1M+)ARM oftenSavings per month are large; often worth the risk
Primary residence foreverFixed winsStability and predictability outweigh savings
Tight monthly budgetFixed winsCan't absorb payment shock if rate adjusts up

Understanding ARM Rate Caps

Rate caps protect you from unlimited rate increases. They're expressed as three numbers — for example 2/2/5:

2
Initial Cap
Max rate increase at the first adjustment after the fixed period ends
2
Periodic Cap
Max rate change at any single annual adjustment thereafter
5
Lifetime Cap
Max total rate increase above the initial rate for the life of the loan
Cap StructureInitialPeriodicLifetimeExample
2/2/52%2%5%6% ARM → max 11% ever, max 8% at first adjustment
5/2/55%2%5%6% ARM → max 11%, can jump to 11% at first adjustment
2/1/52%1%5%6% ARM → max 11%, only 1% per year after initial

How ARM Adjustments Are Calculated

When your ARM adjusts, your new rate is calculated as: Index Rate + Margin = New Rate (subject to caps).

The index is typically SOFR (Secured Overnight Financing Rate), which replaced LIBOR in 2023. Your lender sets the margin (typically 2.5–3.5%) at origination and it never changes. SOFR fluctuates daily based on overnight lending rates between banks.

  • Find your margin in the loan documents. It's fixed at origination and stated in your note. Ask your lender explicitly before signing.
  • Look up current SOFR at the New York Fed SOFR page. Add your margin to estimate your adjusted rate today.
  • Set a calendar reminder 6 months before your adjustment date. That's when to decide whether to refinance.
  • Stress test your budget using the worst-case rate (initial rate + lifetime cap) to make sure you can still afford the payments.
FAQ

ARM vs Fixed — Common Questions

When is an ARM better than a fixed-rate mortgage?
An ARM makes sense when: (1) You plan to sell within the initial fixed period — get the lower rate, then sell before it adjusts. (2) You expect rates to fall — if you think rates will be lower when the ARM adjusts, you benefit twice. (3) The spread is large — ARM needs to be at least 0.5% lower than fixed to be worth the risk on most loans. (4) You're buying a jumbo loan — the monthly savings on a $1.5M loan at 0.5% lower rate are substantial ($375+/mo).
What is the rate cap structure for ARMs?
ARM caps are expressed as three numbers — e.g., 2/2/5 or 5/2/5. The first number is the initial adjustment cap (max rate increase at the first adjustment after the fixed period). The second is the periodic cap (max increase at any single subsequent adjustment). The third is the lifetime cap (max total increase above the initial rate). Example: A 6% ARM with 2/2/5 caps can never exceed 11%, and can only rise 2% at any one adjustment.
What index do ARMs adjust to?
Most modern ARMs adjust based on SOFR (Secured Overnight Financing Rate), which replaced LIBOR. Your new rate = SOFR + your loan's margin (typically 2.5–3.5%). If SOFR is 4% and your margin is 2.75%, your adjusted rate would be 6.75% (before caps). Ask your lender for the current SOFR rate and your loan's margin to forecast your adjusted payment.
What is the break-even point for ARM vs fixed?
The break-even point is the month when cumulative ARM payments (including interest savings during the fixed period) equal cumulative fixed payments. Before that point, ARM has paid less in total. After it, fixed has paid less. Our calculator shows the exact break-even month and year. If you plan to keep the loan longer than the break-even, fixed wins. If shorter, ARM wins.
Is a 7/1 ARM a good idea in 2024?
It depends on your situation. In March 2026, the spread between 30-year fixed (6.41%) and 7/1 ARM (5.90%) is about 0.51%. On a $500K loan that saves $246/month for 7 years = $20,664. If you're confident you'll sell or refinance within 7 years, the ARM captures that savings. If you stay past the adjustment and rates have risen, you could pay significantly more. Many move-up buyers and jumbo borrowers choose 7/1 or 10/1 ARMs for this reason.
Can I refinance out of an ARM into a fixed rate?
Yes — refinancing from an ARM to a fixed rate is one of the most common strategies. Homeowners get the initial savings from an ARM, then refinance to a fixed rate either before the first adjustment or when rates are favorable. Use our refinance calculator to see if the savings justify the closing costs. Typical refi costs run 2–3% of the loan amount, so you need at least 18–24 months of rate savings to break even on the refinance.

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