Fixed vs. Adjustable Rate Calculator
Compare a fixed-rate mortgage with an adjustable-rate mortgage (ARM) based on how long you plan to stay in your home.
Fixed Rate or Adjustable Rate?
A fixed-rate mortgage keeps the same rate and payment for the entire loan. An adjustable-rate mortgage, or ARM, has a fixed rate for an initial period, commonly five, seven, or ten years, and then adjusts periodically based on a market index. ARMs have caps that limit how much the rate can change at each adjustment and over the life of the loan.
The initial rate on an ARM is often lower than on a 30-year fixed loan. Enter both rates and how long you expect to keep the home to compare the total cost. If you are confident you will sell or refinance before the first adjustment, an ARM can save money. If you plan to stay long term, the certainty of a fixed rate is usually worth more.
Example: On a $600,000 loan, a 30-year fixed at 6.5% has a payment of about $3,792. A 7-year ARM at 6.0% starts at about $3,597, saving roughly $195 a month, or about $16,400 over the first seven years.
Common Questions
What do the numbers in a 7/6 ARM mean?
The rate is fixed for the first seven years and then adjusts every six months.
How high can an ARM rate go?
Each ARM has caps. A common structure limits the first adjustment to 5%, later adjustments to 1%, and the lifetime increase to 5% above the starting rate.
Can I refinance out of an ARM later?
Yes, if you qualify at that time. Because future rates and home values are unknown, it is wise to make sure you could afford the payment if the rate adjusts upward.