Adjustable-Rate Mortgage (ARM) Calculator

How an ARM really works

A 7/6 ARM is fixed for 7 years, then adjusts every 6 months. Each adjustment sets your rate to index + margin (today roughly 4.3% + 2.5% = 6.8%), limited by caps: a first-adjustment cap, an annual cap (often 2%), and a lifetime cap (often 5% above the start rate). Your payment is then recalculated on the remaining balance and term.

The three payments you must be able to afford

1. The starting payment — on $400,000 at 5.9%, about $2,372 a month.
2. The expected adjusted payment — at today's fully indexed 6.8% on the remaining balance, roughly $2,600.
3. The worst case — if rates spike and the annual cap binds at 7.9% on the first adjustment, around $2,830, with a lifetime ceiling of 10.9% lurking beyond. If that number breaks your budget, the ARM is too risky for you — regardless of the teaser.

When an ARM makes sense

ARMs are rational when you are confident you will sell or refinance before or soon after the fixed period — a job relocation, a starter home, a planned move-up. The savings versus fixed rates are real (often 0.5–1% during the fixed years). They are dangerous as an affordability stretch for a 'forever home'. Compare the fixed alternative in the payment calculator, and if the low initial payment is the entire appeal, also check the interest-only calculator to see an even more extreme version of the same trade. First-time buyers should read types of mortgages before choosing an ARM.