Calculators >> ARM
vs. Fixed Rate Mortgage
A fixed rate mortgage has the same payment for the entire
term of the loan. An adjustable rate mortgage (ARM) has a
rate that can change, causing your monthly payment to increase
or decrease. Use this calculator to compare a fixed rate
mortgage to two types of ARMs, a Fully Amortizing ARM and
an Interest Only ARM.
Definitions
- Fixed Rate Mortgage
- A fixed rate mortgage has the same interest rate
and monthly payment throughout the term of the
mortgage. The payment is calculated to payoff the
mortgage balance at the end of the term. The most
common terms are 15 year and 30 years.
- Fully Amortizing ARM
- This is the most common type
of ARM. The monthly payment
is calculated to payoff the
entire mortgage balance at
the end of the term. The term
is typically 30 years. After
any fixed interest rate period
has passed, the interest rate
and payment adjusts annually.
A Fully Amortizing ARM will
also have a maximum rate that
it will not exceed. This calculator
uses a maximum interest rate
of 12%. Below is a list of
the most common types of Fully
Amortizing ARMs.
| Common
Adjustable Rate Mortgages |
| ARM Type |
Months
Fixed |
| 10/1
ARM |
Fixed
for 120 months, adjusts
annually for the
remaining term of
the loan. |
| 7/1
ARM |
Fixed
for 84 months, adjusts
annually for the
remaining term of
the loan. |
| 5/1
ARM |
Fixed
for 60 months, adjusts
annually for the
remaining term of
the loan. |
| 3/1
ARM |
Fixed
for 36 months, adjusts
annually for the
remaining term of
the loan. |
| 1
year ARM |
Fixed
for 12 months, adjusts
annually for the
remaining term of
the loan. |
- Interest Only ARM
- An Interest Only ARM only requires monthly
interest payments. Since you are not paying any
principal, as you are with the other two types
of mortgages described above, this can lower
your monthly payment. However, since your mortgage's
principal balance is not decreased, you will
have a balloon payment at the end of the mortgage's
term. Like a Fully Amortizing ARM, an Interest
Only ARM will often have a period where the interest
rate is fixed, and then it is adjusted annually.
An Interest Only ARM will also have a maximum
interest rate that it will not exceed. This calculator
uses a maximum interest rate of 12%.
- Mortgage amount
- Expected balance for
your mortgage.
- Term
in years
- The
number of
years over
which you
will repay
this mortgage.
The most
common mortgage
terms are
15 years
and 30 years.
Please note
that for
the Interest
Only ARM
you will
have a balloon
payment for
the entire
principal
balance at
the end of
the loan
term.
- Expected
rate
change
- The
annual
adjustment
you
expect
in
your
ARM.
The
range
for
this
calculator
is
minus
3%
to
plus
3%.
Use
a
negative
value
if
you
believe
interest
rates
will
decrease,
a
positive
value
if
you
believe
they
will
increase.
- Interest
rate
- Annual
interest
rate
for
each
mortgage
type.
Typically
an
ARM
will
have
a
lower
interest
rate
than
a
fixed
rate
mortgage.
The
rate
of
an
Interest
Only
ARM
will
vary
by
lender.
- Months
rate
fixed
- This
is
the
number
of
months
the
rate
is
fixed
for
an
ARM.
During
this
period
the
interest
rate
and
the
monthly
payment
will
remain
fixed.
The
rate
will
then
adjust
annually
by
the
expected
rate
change.
- Interest
rate
cap
- This
is
the
maximum
interest
rate
for
this
mortgage.
The
mortgage's
interest
rate
will
never
exceed
the
interest
rate
cap.
- Monthly
payment
- Monthly
principal
and
interest
payment
(PI)
for
the
Fixed
Rate
Mortgage
and
the
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