ARM vs. Fixed-Rate Mortgage Comparison

Adjustable vs. fixed payment schedules · intro lock → margin+index repricing → caps → total interest under index scenarios · scenario model from your inputs, not a quote

Loan & Fixed OFF
ARM Structure OFF
Index & Margin OFF
Scenarios OFF
Break-even OFF

Loan & Fixed Reference

Both mortgages share the same loan amount, term, and payoff date so the comparison is apples-to-apples. The fixed loan is the reference: one rate, one payment, never changes.

monthly P&I = P · r / (1 − (1+r)⁻ⁿ)
  r = annual rate ÷ 12 · n = months
  • Loan amount — principal both loans start with.
  • Term — years to full amortization; equal for both.
  • Fixed rate — constant for the whole term.

Only principal & interest are modeled. Taxes, insurance, PMI and fees are out of scope.

ARM Structure

The ARM price-of-money is split: an intro rate for the initial fixed period, then periodic repricing at index + margin, bounded by two caps measured off the intro rate.

celling = intro rate + lifetime cap
floor  = max(0, intro rate − lifetime cap)
each repricing ≤ prev ± annual cap
  • Initial fixed period — the low intro rate holds this long (3/5/7/10 yr).
  • Adjustment frequency — months between repricings after the lock ends.
  • Annual cap — max change allowed per adjustment event.
  • Lifetime cap — max change vs the intro rate; modeled as both a ceiling and a floor, though real product floors vary.

Every adjustment recasts the payment so the loan still pays off at the original term end — the standard adjustment behavior, and the reason later spikes raise monthly P&I.

Index & Margin

After the lock, the ARM fully indexed rate is index + margin. You enter the index and its future path as plain assumptions — this tool has no live market data.

full rate = index(t) + margin
index(t) flat  : index now
index(t) rising: index now + rise×yr
index(t) falling: index now − fall×yr
  • Index value now — e.g. SOFR, CMT, or LIBOR-era proxies; type in your own number.
  • Margin — lender markup added on top of the index.
  • Rising / falling — points-per-year the index path drifts in each scenario.
  • The worst-case scenario ignores the index entirely and rides the caps instead.

Your numbers ⇒ your scenarios. Swap the index today and watch every table update.

Index Scenarios

Four user-defined paths are simulated and all are shown together:

  • Flat — index never moves; the ARM settles at index + margin.
  • Rising — index gains points per year until caps bind.
  • Falling — index loses points per year; caps may hold it up on the way down.
  • Worst-case — each adjustment jumps the maximum annual cap until the lifetime ceiling; the guaranteed-worst repricing path, no index needed.

For each scenario the tool totals interest over the full term, then compares against the fixed reference. Caps, floors, index trajectory, and frequency are your inputs — actual product caps vary widely, so the numbers here are a scenario model, not a quote.

Break-even Year

Principal is identical under both loans, so total cost differs only by interest. Break-even is the point where the ARM’s cumulative interest catches the fixed loan’s.

break-even ↔ Σ ARM interest = Σ fixed interest

before it → ARM cheaper (cumulative)
after it   → fixed cheaper (cumulative)
  • Hold the ARM at least past break-even and it stops being the cheap loan.
  • The headline uses the worst-case caps path — the shortest safe stay is the concern, not a lucky index.
  • “Never” means the ARM stays cheaper in cumulative interest over the whole modeled term.

This is a hold-to-term model; selling or refinancing earlier keeps you on the cheap side of the crossover.

🏡️ Loan & Fixed Reference
Constant rate and payment for the whole term
Fixed monthly P&I—
📉 ARM Structure
Ceiling (and modeled floor) off the intro rate · cap limits vary by product
ARM intro P&I—
📐 Index & Margin Assumptions
Full rate after lock = index + margin · index is a user-entered default, not live data
Fully indexed “flat” rate—
📈 Index Scenario Totals
Scenario Peak Rate Peak Monthly Total Interest vs Fixed Break-even
📉 Comparison Model
Scenario modeling from your inputs, not a quote. Mortgage caps, floors, index margins and adjustment designs vary by lender and product. Repricing here is assumed to recast payments to the original term end; taxes, insurance, PMI, fees and refinancing are excluded. No legal, tax, or lending claim is made.
Year-by-Year P&I Scenario
Year ARM Rate ARM Mo. P&I ARM Cum. Int. Fixed Rate Fixed Mo. P&I Fixed Cum. Int. Int. Δ (ARM−Fixed) Cheaper
Monthly P&I by year — ARM scenarios vs fixed reference
Flat Rising Falling Worst-case Fixed
Cumulative interest difference — ARM minus fixed, by year
Flat Rising Falling Worst-case Break-even