ARM vs. Fixed-Rate Mortgage Calculator

Two Simulations, Same Starting Balance

The calculator runs two month-by-month amortization simulations from your loan amount, then compares total interest paid at the end of your planned stay period.

ARM simulation:

1. Fixed window (months 1 through ARM fixed years × 12): applies the ARM initial rate using the standard amortization formula for the full loan term
2. Adjustment (first month after the fixed window): takes the remaining balance and remaining term, then re-amortizes at the adjusted rate — exactly what your lender does when the ARM resets
3. Continues at the adjusted rate for the rest of the stay period

Fixed simulation:

Applies the fixed rate using standard amortization for the full stay period. No adjustments, no phase changes.

The Cumulative Interest Chart

The chart plots cumulative interest paid each year under both scenarios. Where the ARM line sits below the fixed line, the ARM has cost less in total. If the lines cross — the break-even year — that's the point at which the ARM's higher adjusted payment has erased all the savings from the initial period. If you sell before the crossover, the ARM wins.

Why "How Long You Plan to Stay" Matters

Everything pivots on this input. If your stay period is shorter than the ARM's fixed window, you never experience the adjusted rate at all — the ARM almost always wins. If you stay 10+ years past the adjustment, the higher rate compounds long enough to overtake the fixed loan's total cost. The calculator shows exactly when that crossover happens.

1. Buying a Starter Home or Known Short-Term Property

If you plan to sell or upgrade within 5–7 years, an ARM's lower initial rate may be the better choice. Run this calculator with your realistic stay estimate. If the break-even year is beyond your expected sale date, the ARM wins cleanly.

2. Relocating for Work

Professionals who relocate every 3–5 years are natural ARM candidates. The initial rate savings are captured in full; the adjustment is irrelevant because you're gone. This calculator quantifies the exact dollar benefit for your specific loan size.

3. Evaluating a Large Rate Spread

When the ARM initial rate is significantly lower than fixed rates — 1% or more — the savings during the fixed window can be substantial. Use this calculator to see if those savings offset the risk of a higher adjusted rate, and to identify the break-even year that defines your risk horizon.

4. Modeling Rate Scenarios

The "ARM Rate After Adjustment" input is your most important assumption. Run three scenarios:

• Base case: current index + your loan's margin (check your loan docs)
• Bear case: current index + 2% (rate cap at first adjustment)
• Best case: current index flat or declining (rates fall, you refinance)

Compare results across scenarios to understand your exposure before committing.

5. Deciding Whether to Refinance an Existing ARM

If you have an ARM approaching its adjustment date, enter your current balance as the loan amount and set the stay period to how many more years you plan to own. The calculator shows whether staying in the ARM (at the expected adjusted rate) or refinancing to fixed (at today's fixed rates) costs less over that horizon.