10/1 ARM Calculator Mortgage

10/1 ARM Formula:

\[ PMT_{initial} = PV \times \frac{r_{fixed}}{1 - (1 + r_{fixed})^{-120}} \]

After 10 years, rate adjusts annually based on index + margin

Loan Amount (PV):

USD

Fixed Interest Rate:

Expected Index Rate:

Lender's Margin:

Periodic Rate Cap:

Initial Monthly Payment (10 years):

Projected Adjusted Payment:

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1. What is a 10/1 ARM?

A 10/1 Adjustable Rate Mortgage (ARM) has a fixed interest rate for the first 10 years, then adjusts annually (the "1" in 10/1) based on market conditions. This calculator helps estimate both the initial fixed-rate payment and projected adjustable payments.

2. How Does the Calculator Work?

The calculator uses two formulas:

Initial Payment (First 10 Years):

\[ PMT_{initial} = PV \times \frac{r_{fixed}}{1 - (1 + r_{fixed})^{-120}} \]

Adjusted Payment (After 10 Years):

\[ PMT_{adjusted} = PV \times \frac{r_{adjusted}}{1 - (1 + r_{adjusted})^{-240}} \]

Where:

\( PV \) — Loan principal amount
\( r_{fixed} \) — Fixed monthly interest rate
\( r_{adjusted} \) — Adjusted monthly rate (index + margin, with caps)
120 — Number of fixed-rate payments (10 years)
240 — Remaining payments after adjustment (20 years)

3. Understanding ARM Components

Index Rate: The benchmark rate (like LIBOR or SOFR) that your adjustable rate will be based on.
Margin: The lender's markup added to the index rate.
Rate Cap: Limits how much your rate can increase at each adjustment period.
Lifetime Cap: Maximum rate allowed over the life of the loan (typically 5-6% above initial rate).

4. Using the Calculator

Tips: Enter loan amount in USD, fixed interest rate in %, and projected index rate. The calculator shows initial payment and projected payment after rate adjustment.

5. Frequently Asked Questions (FAQ)

Q1: Who should consider a 10/1 ARM?
A: Borrowers who plan to sell/refinance within 10 years or expect income to increase before adjustment.

Q2: What are typical index rates?
A: Common indexes include SOFR (currently ~5%) or Treasury rates. Check current market rates.

Q3: How often can the rate adjust?
A: For 10/1 ARM, annually after the initial 10-year fixed period.

Q4: What's the maximum rate increase?
A: Typically 2% per adjustment and 5% lifetime cap, but varies by lender.

Q5: Are ARMs risky?
A: They can be if rates rise significantly, but initial rates are often lower than fixed mortgages.