Adjustable-Rate Mortgage Calculator

How it works

A hybrid ARM keeps its initial rate for a fixed period (the first number in 5/1 or 7/6), then adjusts at a set frequency: every year for a 5/1, every six months for a 5/6, 7/6 or 10/6. At each adjustment the new rate is the index plus the margin, limited by the caps, and the payment is recalculated so the balance is repaid over the months left.

Caps limit each change. The initial cap limits the first adjustment, the periodic cap limits each one after that (in either direction), and the lifetime cap limits how far the rate can ever rise above the initial rate. The rate is also never set below the margin, as is typical of ARM contracts.

The calculator runs the loan twice. Your index path starts the index at today's value and moves it by the change you enter at every adjustment. The worst case ignores the index and raises the rate by the full cap at every adjustment (never below the margin floor) until it reaches the lifetime maximum, which is how a Loan Estimate's maximum payments are worked out. The worst case is the most the contract allows.

Formula

r = rate ÷ 12        n = years × 12
initial payment = paymentForLoan(P, r₀, n)
at adjustment k (month m):
  cap_k   = initial cap if k = 1, else periodic cap
  target  = max(0, index + k × index change) + margin
  rate_k  = min(max(target, rate_(k−1) − cap_k), rate_(k−1) + cap_k)
  rate_k  = min(max(rate_k, margin), initial rate + lifetime cap)
  payment = paymentForLoan(balance, rate_k ÷ 12, n − m + 1)
worst case: rate_k = min(max(rate_(k−1) + cap_k, margin), initial rate + lifetime cap)

Example

A $300,000 30-year 5/1 ARM at an initial 6% has a payment of $1,798.65 for the first five years. With a 2.75% margin, an index of 4% that rises 0.25 points a year and 2/2/5 caps, the first adjustment moves the rate to 7.00% (4.25% + 2.75%) and the payment to $1,973.07. The rate keeps rising with the index until it reaches the 11% lifetime maximum in year 22, where the payment peaks at $2,535.88; total interest comes to $516,567.63.

In the worst case the rate goes to 8% in year 6, 10% in year 7 and the 11% lifetime maximum in year 8. The payment jumps to $2,154.63, then $2,527.48, and peaks at $2,717.83, with total interest of $614,225.47.

Assumptions and limitations

• The index path is an assumption you enter, not a forecast; nobody knows where SOFR or Treasury rates will be in five or ten years. The worst case is the only path the contract guarantees you will not exceed.
• Caps 2/2/5 (initial/periodic/lifetime) are the default because they are common; 5/2/5 is also common, and some ARMs use a 1-point periodic cap. Enter the caps from your own Loan Estimate.
• The rate floor is the margin; some contracts set a different floor. Lenders also round the fully indexed rate (often to the nearest 0.125%); this calculator does not.
• Payments fully amortize; interest-only, payment-option and negative-amortization ARMs are not modelled. Rate changes take effect in the month after the fixed period ends and the payment is recalculated the same month.
• Taxes, insurance, mortgage insurance and fees are not included.
• Results are estimates for planning and are not financial, tax or legal advice. Your Loan Estimate's Adjustable Interest Rate (AIR) table is the authority for your loan's terms.

Frequently asked questions