What this calculator does
An adjustable-rate mortgage (ARM) has a fixed rate for the first years, often 3, 5, 7 or 10, and then the rate changes at set times. Enter your loan, the starting rate, the index value, the margin and the caps from your loan papers, and the calculator shows the new rate and payment at the first reset, at later resets, and in the worst case the caps allow.
How an ARM rate is set
- Index: a market rate the loan follows, such as an average of the Secured Overnight Financing Rate (SOFR).
- Margin: the fixed amount the lender adds to the index. Index + margin is the "fully indexed" rate.
- Caps: limits on how much the rate can change at the first adjustment, at each later adjustment, and over the life of the loan. A "2/1/5" loan can rise up to 2 points at the first reset, 1 point at each later reset and 5 points in all above the start rate.
Your Loan Estimate and note list the index, margin, caps and how often the rate adjusts (CFPB, Consumer Handbook on Adjustable-Rate Mortgages).
How it is worked out
At each reset, new rate = index + margin, but no more than the cap above (or below) the current rate and the lifetime cap; new payment = the payment that pays off the remaining balance over the remaining term. Example: a $400,000, 30-year 5/1 ARM at 5.5% pays $2,271.16 a month. If the index is 4.3% and the margin 2.75%, the rate after 5 years becomes 7.05% (within the 2-point cap) and the payment about $2,626. In the worst case with 2/1/5 caps, the rate climbs to 10.5% and the payment to about $3,454.
Frequently asked questions
What does 5/1 or 5/6 ARM mean?
The first number is the years at the fixed starting rate. The second tells how often it adjusts afterward: 1 means every year, 6 means every 6 months.
What do the caps 2/1/5 mean?
The rate can change by up to 2 percentage points at the first adjustment, 1 point at each later adjustment, and 5 points in total above the starting rate.
Can my ARM rate go down?
Yes, if the index falls, usually within the same caps. Many loans also have a floor, often the margin, below which the rate cannot go.
What can I do before my ARM resets?
Check the date and new rate in the notice your servicer sends before the change, compare refinancing to a fixed rate, and plan your budget for the highest payment the caps allow.
Is my information saved?
No. The numbers stay on this page.