1. What is a 3-Year ARM Mortgage?

A 3-Year Adjustable Rate Mortgage (ARM) is a loan with a fixed interest rate for the first 3 years, after which the rate adjusts periodically based on market conditions. This calculator computes the initial monthly payment during the fixed-rate period.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula for the initial 3-year fixed period:

Where:

• \( PMT \) — Monthly payment
• \( PV \) — Loan principal amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• 36 — Number of months in 3 years

Explanation: The formula calculates the fixed monthly payment needed to fully amortize the loan over the initial 3-year period at the given interest rate.

3. Understanding ARM Payments

Details: While this calculator shows the initial payment, remember that after 3 years the rate and payment will adjust based on the index rate plus margin, subject to periodic and lifetime caps.

4. Using the Calculator

Tips: Enter the loan amount in USD and the annual interest rate as a percentage. The calculator will show the fixed monthly payment for the first 3 years.

5. Frequently Asked Questions (FAQ)

Q1: How does a 3-Year ARM differ from a fixed-rate mortgage?
A: A 3-Year ARM has a fixed rate for only 3 years, then adjusts periodically, while a fixed-rate mortgage maintains the same rate for the entire loan term.

Q2: What happens after the initial 3-year period?
A: The interest rate adjusts based on a financial index plus a fixed margin, typically every year after the initial period.

Q3: Are there limits to how much the rate can change?
A: Yes, ARMs have periodic adjustment caps (e.g., 2% per year) and lifetime caps (e.g., 5% over loan term).

Q4: Who might benefit from a 3-Year ARM?
A: Borrowers who plan to sell or refinance within 3 years, or expect rates to decline in the future.

Q5: Does this include taxes and insurance?
A: No, this calculates principal and interest only. Actual payments may include escrow for taxes and insurance.