ARM Mortgage Calculator
Model the initial fixed payment and the payment shock at the first rate reset on a US hybrid ARM, with the lifetime cap applied.
Initial monthly payment
£1,896.20
- Payment after first adjustment
- £2,261.34
- Payment change at reset
- +365.14
- Adjusted rate (after caps)
- 8.50%
- Balance at first reset
- £280,832.93
- Total interest paid
- £492,175.09
- Total amount paid
- £792,175.09
A 5/1 ARM holds the rate steady for the first 5 years, then resets to the fully-indexed rate (index + margin), bounded by the lifetime cap above the start rate. The calculator re-amortises the remaining balance at that capped rate over the 25 years left in the term and shows the payment shock at reset.
How to use this calculator
Enter the loan amount in US dollars, the total term in years (typically 30), the initial fixed rate, the length of the initial fixed period (3, 5, 7, or 10 years on a 3/1, 5/1, 7/1 or 10/1 ARM), the rate you expect to apply after the first reset, and the lifetime rate cap above the start rate (5 percentage points is the most common). The calculator returns the initial monthly principal-and-interest payment, the payment after the first reset (with the lifetime cap applied), the size of the payment change at reset, the remaining loan balance at reset, the total interest paid, and the total amount paid over the full term.
How the calculation works
A hybrid ARM holds a fixed introductory rate for the first several years, then resets to a fully-indexed rate (an external index such as SOFR or the 1-year CMT, plus a margin set by the lender). The initial payment is calculated with the standard amortising-payment formula M = L × r / (1 − (1+r)^−n), with r the monthly rate and n the total months. After the introductory period ends, the calculator works out the remaining balance and re-amortises it at the adjusted rate over the remaining months. The adjusted rate is bounded above by the lifetime cap (typically initial + 5 percentage points), so even if the indexed rate runs hotter than expected, the calculator shows the worst case that the loan contract actually permits.
Worked example
A 300,000 USD 5/1 ARM at 6.00% start rate over 30 years, with an expected rate after reset of 8.00% and a 5-point lifetime cap. The initial monthly payment is about $1,798.65. After 5 years (60 payments at the start rate) the remaining balance is about $279,163. Re-amortising that balance at 8.00% over the remaining 25 years gives an adjusted monthly payment of about $2,154.50 — a payment shock of about $355.85, or roughly 20%. Total interest over the full 30 years comes to about $454,000 under this rate path.
Frequently asked questions
How does a 5/1 ARM differ from a 30-year fixed mortgage?
A 5/1 ARM keeps the same monthly payment for the first 5 years, then resets the rate every year for the remaining 25 years of the 30-year term. A 30-year fixed mortgage locks the rate for the entire 30 years. ARMs typically start at a lower rate than fixed mortgages (the "teaser" rate) because the lender is taking on less rate risk in the early years. If you sell or refinance before the reset, you keep the lower rate the whole time. If you stay in the loan, your payment can rise (or fall) at each reset depending on where the underlying index sits. This calculator models a single reset and shows the long-run payment if the rate stays at the adjusted level for the rest of the term — re-run it after each subsequent reset to refresh the payment estimate.
What do the numbers in "5/1 ARM" actually mean?
The first number is the length of the initial fixed-rate period in years. The second number is how often the rate adjusts thereafter, in years. So a 5/1 ARM is fixed for 5 years and then adjusts every 1 year. Common variants are 3/1, 5/1, 7/1, and 10/1. You also see 5/6 ARMs, where the rate is fixed for 5 years and then adjusts every 6 months (the "6" is months, not years). The hybrid format was introduced to give borrowers a longer fixed window than a pure 1-year ARM but still give the lender a chance to reset over the bulk of a 30-year amortisation.
What are the caps on an ARM and why do they matter?
ARMs typically come with three caps, usually written as something like "2/2/5". The first number is the initial cap — the most the rate can change at the first reset, in percentage points (so a 6% start rate with a 2-point initial cap could go to at most 8% at first reset). The second is the periodic cap — the most the rate can change at any subsequent reset. The third is the lifetime cap — the most the rate can ever rise above the start rate over the life of the loan. A 5-point lifetime cap on a 6% start rate caps the rate at 11% no matter what the index does. This calculator clamps the adjusted rate by the lifetime cap, which is the most consequential of the three for long-run cost.
When does an ARM make sense versus a fixed-rate mortgage?
ARMs tend to make sense when you expect to sell, refinance, or pay off the loan before or shortly after the reset, and when the introductory rate is materially below the equivalent fixed rate at the time you borrow. Common cases: a buyer who expects to move within 5-7 years, a borrower who expects rates to fall before the reset, or someone who expects strong income growth that will absorb a higher reset payment comfortably. Fixed-rate mortgages tend to win when you plan to stay in the home long-term, when the spread between ARM and fixed rates is small, or when your budget cannot absorb a payment shock at reset. Use this calculator at the contract rate to see the headline payment, then re-run it with the lifetime-cap rate to stress-test the worst-case payment.
How accurate is this calculator if rates only go up a little after the reset?
The calculator assumes a single reset to the rate you input, then holds that rate steady for the rest of the term. In reality, an ARM resets at every adjustment interval after the introductory period and the index can drift up or down over time. For a quick estimate, enter your best guess for the average rate over the remaining term — many borrowers and underwriters use the fully-indexed rate at origination as a placeholder. To stress-test the worst case, enter the start rate plus the lifetime cap. To stress-test the best case, enter the lowest plausible index plus the margin. The total-interest and total-paid figures are exact under whatever rate path the calculator assumes; the uncertainty is in the rate path itself, not the maths.
Does this calculator include property tax, insurance, PMI, or HOA?
No. This is a pure principal-and-interest calculator. To estimate the full monthly housing cost (often called PITI for principal, interest, tax, insurance, or PITIA when HOA is included), add monthly property tax (annual tax / 12), homeowners insurance (typically $50-200/month depending on coverage and location), private mortgage insurance if your down payment was under 20% (typically 0.3-1.5% of the loan annually), and any HOA dues. Conventional ARMs follow the same PMI rules as fixed-rate mortgages: PMI is required when the loan-to-value exceeds 80% and drops off automatically at 78% LTV or by request at 80%.