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Adjustable Rate Mortgage (ARM) vs. Fixed Rate Mortgage
A
Fixed Rate Mortgage
has the same monthly payment for the entire term of the loan. In contrast, an Adjustable Rate Mortgage (ARM) has a rate that can change, causing the monthly payment to increase or decrease. This caculator compares a fixed rate mortgage to two types of Adjustable Rate Mortgages (ARMs), (1) a Fully Amortizing Adjustable Rate Mortgage (ARM), and (2) an Interest Only Adjustable Rate Mortgage (ARM).
ARM vs Fixed Rate Mortgage Caculator - Definitions
This
Adjustable Rate Mortgage (ARM) vs. Fixed Rate Mortgage (Calc Mortgage)
Calculator generates fully amortizing mortgage tables for (1) the fixed rate mortgage, (2) a Fully Amortizing Adjustable Rate Mortgage (ARM), and (3) an Interest Only Adjustable Rate Mortgage (ARM). The monthly payment is calculated to payoff the entire mortgage balance by the end of the term. The term is typically 30 years. At the end of the fixed interest rate period, the interest rate and payment adjust at the frequency specified in the mortgage agreement. A Fully Amortizing Adjustable Rate Mortgage (ARM) will also have a maximum rate, often referred to as a cap, that it will not exceed.
The most common types of Fully Amortizing Adjustable Rate Mortgages (ARMs) are:
10/1 Adjustable Rate Mortgage (ARM)
7/1 Adjustable Rate Mortgage (ARM)
5/1 Adjustable Rate Mortgage (ARM)
3/1 Adjustable Rate Mortgage (ARM)
Fixed Rate Mortgage/Fixed 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 Adjustable Rate Mortgage (ARM)
-
This is the most common type of Adjustable Rate Mortgage (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 Adjustable Rate Mortgage (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 Adjustable Rate Mortgages (ARMs).
Interest Only Adjustable Rate Mortgage (ARM)
-
An Interest Only Adjustable Rate Mortgage (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 Adjustable Rate Mortgage (ARM), an Interest Only Adjustable Rate Mortgage (ARM) will often have a period where the interest rate is fixed (fixed rate), and then it is adjusted annually. An Interest Only Adjustable Rate Mortgage (ARM) will also have a maximum interest rate that it will not exceed. This calculator uses a maximum interest rate of 12%.
Mortgage amount
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Expected balance for your mortage loan.
Mortgage Loan Term in years
-
The number of years over which you will repay this mortgage loan. The most common mortgage terms are 15 years and 30 years. Please note that for the Interest Only Adjustable Rate Mortgage (ARM) you will have a balloon payment for the entire principal balance at the end of the mortgage loan term.
Expected rate change
-
The annual adjustment you expect in your Adjustable Rate Mortgage (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 Adjustable Rate Mortgage (ARM) will have a lower interest rate than a fixed rate mortgage. The rate of an Interest Only Adjustable Rate Mortgage (ARM) will vary by lender.
Months rate fixed
-
This is the number of months the rate is fixed for an Adjustable Rate Mortgage (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 loan. 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 Fully Amortizing Adjustable Rate Mortgage (ARM). This is an interest only payment for an Interest Only Adjustable Rate Mortgage (ARM).