ARM vs Fixed Mortgage Calculator

Mortgage Cost Comparison:

\[ \text{Total Cost}_{ARM} = \sum PMT_{ARM} - PV \quad \text{vs} \quad \text{Total Cost}_{Fixed} = \sum PMT_{Fixed} - PV \]

Loan Amount (PV):

USD

Loan Term:

years

Fixed Interest Rate:

Initial ARM Rate:

ARM Rate Adjustment:

Adjustment Period:

years

Fixed Mortgage Payment (PMT_Fixed):

Total Cost Fixed (Total Cost_Fixed):

Total Cost ARM (Total Cost_ARM):

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1. What is ARM vs Fixed Mortgage Comparison?

This calculator compares the total costs of an Adjustable Rate Mortgage (ARM) versus a Fixed Rate Mortgage. The total cost is calculated as the sum of all payments minus the original loan amount (PV).

2. How Does the Calculator Work?

The calculator uses the following formulas:

\[ \text{Total Cost}_{ARM} = \sum PMT_{ARM} - PV \] \[ \text{Total Cost}_{Fixed} = \sum PMT_{Fixed} - PV \]

Where:

\( PMT_{ARM} \) — Varying payments for ARM (USD)
\( PMT_{Fixed} \) — Fixed payment for fixed mortgage (USD)
\( PV \) — Original loan amount (USD)

Explanation: The calculator computes monthly payments for both mortgage types and sums them over the loan term to determine total cost.

3. Importance of Mortgage Cost Comparison

Details: Comparing total costs helps borrowers understand the long-term financial implications of choosing an ARM versus a fixed-rate mortgage, considering potential rate adjustments.

4. Using the Calculator

Tips: Enter loan amount, term, fixed rate, initial ARM rate, ARM adjustment rate, and adjustment period. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: When might an ARM be better than a fixed-rate mortgage?
A: ARMs may be better if you plan to sell or refinance before rate adjustments occur, or if initial rates are significantly lower than fixed rates.

Q2: What are typical ARM adjustment periods?
A: Common adjustment periods are 1, 3, 5, 7, or 10 years before the first rate change occurs.

Q3: How do rate caps work with ARMs?
A: Most ARMs have periodic and lifetime rate caps that limit how much the rate can increase at each adjustment and over the loan's life.

Q4: What's included in the total cost calculation?
A: This calculator shows interest costs only. Actual total costs may include fees, points, and other closing costs not accounted for here.

Q5: How accurate are these projections?
A: Projections assume rates change exactly by the specified adjustment amount. Actual ARM rates are tied to market indices and may vary.