What does ARM Mortgage Calculator do?
ARM calculator for 5/6, 7/6 and 5/1 loans. See payments after the fixed period under your own index assumption and the worst case the caps allow.
- Price
- Free
- Account
- Not required
- Processing
- Entirely in your browser; your data and files are not uploaded
- Works on
- Any modern browser on desktop, tablet or phone
- Region
- United States (USD)
- Category
- Financial Calculators
How to use the arm mortgage calculator
- Enter the loan amount, initial rate, term and the length of the fixed period.
- Choose how often the rate adjusts afterwards (every 6 or 12 months).
- Copy the first change cap, later change cap, lifetime cap, margin and floor from the Adjustable Interest Rate table on your Loan Estimate.
- Choose a scenario: the rate stays the same, or your own index value and change per adjustment.
- Compare your scenario with the worst case allowed by the caps.
Worked example
$400,000 5/6 ARM at 6% with 2/1/5 caps and a 2.75% margin
The payment is $2,398.20 for the first 5 years. In the worst case the caps allow, the rate goes to 8% at month 61 ($2,872.84), then 9% ($3,120.61) and 10% ($3,373.32), and reaches the 11% lifetime maximum at month 79, for a payment of $3,630.26. Total interest would be $823,822.88, against $463,354.10 if the rate stayed at 6%.
How it works
At each adjustment the new rate = index + margin (optionally rounded to the nearest 0.125%), limited to the previous rate ± the first or later change cap, no higher than the initial rate + the lifetime cap and no lower than the floor. When the rate changes, the payment is recalculated with M = B × r / (1 − (1 + r)−m) on the remaining balance B over the remaining months m. The worst case assumes the index is high enough that every adjustment hits its cap until the lifetime maximum. Interest is rounded to the cent each month.
Assumptions
- Index values are your assumption. The calculator does not use or predict real index values.
- Caps, margin and floor are taken from your loan documents; common examples such as 2/1/5 caps are defaults only.
- The payment is fully amortizing and recalculated whenever the rate changes. Loans with payment caps or negative amortization are not modelled.
- Definitions follow the CFPB explanation of index and margin.
Frequently asked questions
What does 5/6 ARM mean?
The rate is fixed for 5 years, then adjusts every 6 months. A 5/1 ARM adjusts every year after 5 years.
What are 2/1/5 caps?
The rate can change by at most 2 percentage points at the first adjustment, 1 point at each later adjustment, and 5 points above the initial rate over the life of the loan. Your Loan Estimate lists your caps.
How is the new rate set?
Index plus margin. The index moves with the market; the margin is fixed in your loan. The CFPB notes that margins vary between lenders and can be negotiated.
Why show the worst case?
Because no one can predict the index. The caps tell you the highest payment the loan allows, which is the payment you should be able to afford if rates rise.
Limitations
- Not a forecast of interest rates.
- Principal and interest only; taxes and insurance are not included.
- Does not model conversion options, prepayment or interest-only ARMs.