Residential · Calculator
ARM vs Fixed Rate
Year-by-year rate projection under the cap stack, side-by-side with a fixed-rate alternative — and a clear verdict at your exit year.
Loan
When you expect to sell or refinance.
ARM Side
Max % change at first adjustment.
Max % change at each subsequent adjustment.
Max % above start rate, ever.
Current index value (SOFR, CMT, etc).
Lender margin added to index = fully-indexed rate.
Fixed Side
7-year exit verdict
ARM wins by $23,679
Lower cumulative cost through your exit year.
Starting Side-by-Side
7/1 ARM
$1,967.76/mo
Start 4.25% · Caps 2/2/5
Fully indexed 6.600%
Lifetime cap 9.250%
Fixed
$2,366.15/mo
5.875% · 30-year
Same payment for 30 years
At Exit (Year 7)
Year-by-Year Projection
| Year | ARM Rate | ARM /mo | Fixed /mo | Cum. Δ |
|---|---|---|---|---|
| 1 | 4.250% | $1,967.76 | $2,366.15 | +$4,781 |
| 2 | 4.250% | $2,001.50 | $2,366.15 | +$9,156 |
| 3 | 4.250% | $2,037.96 | $2,366.15 | +$13,095 |
| 4 | 4.250% | $2,077.45 | $2,366.15 | +$16,559 |
| 5 | 4.250% | $2,120.31 | $2,366.15 | +$19,509 |
| 6 | 4.250% | $2,166.95 | $2,366.15 | +$21,900 |
| 7 | 4.250% | $2,217.86 | $2,366.15 | +$23,679 |
| 8 | 6.250% | $2,735.50 | $2,366.15 | +$19,247 |
| 9 | 6.600% | $2,875.95 | $2,366.15 | +$13,129 |
| 10 | 6.600% | $2,937.35 | $2,366.15 | +$6,275 |
| 11 | 6.600% | $3,005.89 | $2,366.15 | −$1,402 |
| 12 | 6.600% | $3,082.71 | $2,366.15 | −$10,001 |
| 30 | 6.600% | $34,536.98 | $2,366.15 | −$1,162,859 |
Highlighted row = your exit year. Cum. Δ positive = ARM saving cumulative dollars vs fixed.
Frequently asked
About this calculator.
When does an ARM beat a fixed-rate?
When the ARM's starting rate is meaningfully lower than the fixed rate AND you plan to sell or refinance before (or shortly after) the fixed period ends. A 7/1 ARM at 4.25% vs a 30-year fixed at 5.875%, exited in year 7, saves significant cumulative cost — even if the rate adjusts upward in year 8.
What do the caps mean?
A "2/2/5" cap structure means: 2% maximum increase at the first adjustment, 2% at every subsequent adjustment, and 5% maximum lifetime increase above the start rate. So a 4.25% start rate caps at 9.25% lifetime — never higher, no matter what the index does.
What is the "fully indexed rate"?
The current value of the underlying index (e.g. SOFR, CMT) plus the lender's margin. It's where the ARM rate would settle if all caps were removed. We compute every adjusted-period rate as the lesser of (previous rate + cap) and (fully indexed) — so if rates fall, the ARM falls with them.
How is the year-by-year payment calculated?
After each adjustment, the ARM re-amortizes over the remaining loan term at the new rate. So if your 30-year ARM hits year 8 at 6.25%, the new payment is calculated as if you were taking out a 23-year loan at 6.25% for the current balance — not the original 30-year payment.
Should I take an ARM in this rate environment?
It depends on the spread. With ARM rates close to fixed rates, the savings are minimal and you take rate-adjustment risk for nothing. When ARMs are 1%+ below fixed (which has been true at various points in 2024–2026), the math often favors ARMs for borrowers with a clear 5–10-year exit horizon. We model both at no cost.
Considering an ARM
We model every cap scenario.
Real ARM quotes from multiple wholesale lenders with full disclosure of the cap stack, fully-indexed rate, and exit-year break-even — at no cost.
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