An adjustable-rate mortgage (ARM) usually starts at a lower rate than a fixed-rate loan, then changes on a schedule. Whether it costs less depends on two things you can measure, how long you keep the loan and how far the rate can rise, and one you can only guess: where the index goes. This calculator runs both loans month by month so you can see the cost over your own time horizon and the worst case your contract allows.
How an ARM rate is set
- Rate after the fixed period
- Index + margin
- Limited by your caps
- 7/6 ARM
- Fixed 7 yrs
- Then changes every 6 months
- Lowest rate
- Usually the margin
- Check the minimum on your Loan Estimate
- Where to find your terms
- AIR table
- Page 2 of the Loan Estimate
How the calculation works
- Fixed loan: one payment for the whole term, from the standard amortization formula.
- ARM, fixed period: the payment is set as if your starting rate lasted 30 years.
- Each reset: the new rate is the index on that date plus the margin. It can move no more than the first-change cap at the first reset and the later-change cap after that. It can never go above your start rate plus the lifetime cap, or below the floor. The payment is then recalculated so the remaining balance pays off by the end of the 30 years.
- Cost: we compare the interest each loan charges over the years you expect to keep it. Principal you repay is not a cost; it shows up as a lower balance when you sell or refinance.
- Worst case: a second ARM run assumes the index jumps so high that every cap binds, which gives the highest payment the loan allows.
Worked example
You borrow $600,000. The fixed offer is 7.375% for 30 years. The ARM is a 7/6 starting at 6.5%, with a 2.75% margin, 2/1/5 caps and a 2.75% floor. Fannie Mae ARMs use the 30-day average SOFR as their index, which the New York Fed published at about 3.82% on October 9, 2026, so we start the index at 3.8%. You expect to move in seven years.
| Result | Fixed 7.375% | 7/6 ARM 6.5% |
|---|---|---|
| Monthly P&I, years 1–7 | $4,144 | $3,792 |
| Interest paid in 7 years | $298,099 | $261,060 |
| Balance after 7 years | $549,999 | $542,497 |
| Index flat at 3.8%: first reset rate | — | 6.55% |
| Every cap hit: highest payment | — | $5,573 (11.5%), from year 9 |
Over seven years the ARM saves about $37,000 in interest. If the index stays flat it stays cheaper for the life of the loan. But if the index rises half a point a year, the first reset hits the 2-point cap (8.5%) and the ARM's total interest passes the fixed loan's in year 10. In the worst case the payment climbs to $5,573, about $1,430 more than the fixed payment. That is the number to test against your budget.
Where to get the inputs
Every ARM input is on your Loan Estimate. Page 1 shows the starting rate and how high the rate and payment can go. The Adjustable Interest Rate (AIR) table on page 2 lists the index and margin, the minimum and maximum rate, when the first change happens, how often it changes after that, and the limits on the first and later changes. Enter those, not a generic example. The CFPB's ARM handbook walks through each line.
Edge cases and limits
- Teaser rates: if your starting rate is below the index plus the margin, the rate can rise at the first reset even if the index never moves.
- Caps on decreases: we assume caps limit drops as well as rises. Some loans only cap increases; check your note.
- Rounding: your note may round the index plus margin to a set step. Small differences from this calculator are normal.
- Fees and points are not included. If one offer costs more at closing, add that to its side.
Next steps
Read fixed vs adjustable-rate mortgages for the bigger picture, compare complete offers with the mortgage offer comparison calculator, and learn to read each line in your Loan Estimate. If you lean fixed, the 15 vs 30-year calculator helps pick the term.