Adjustable Rate Mortgage Calculator

ARMs start with a fixed rate for a set introductory period. After that, the rate adjusts at set intervals over time, often annually. Each adjustment is based on a benchmark rate, such as the Secured Overnight Financing Rate (SOFR) plus a lender-set margin. The monthly payment is then recalculated based on the new rate, remaining balance, and term. There are also caps in place that limit the adjustment size to protect against sharp rises.

Increases are limited by rate caps, which restrict how much the rate can rise per adjustment and over the life of the loan. This prevents unlimited jumps while still permitting meaningful payment growth if rates rise broadly. For example, a cap structure of 2/1/5 would allow a 2% increase at the first reset, 1% at each subsequent annual adjustment, and no more than a 5% increase over the life of the loan.

The main difference between fixed and adjustable-rate mortgages is that fixed-rate mortgages keep the same rate and payment throughout the term for predictability, while ARMs offer a lower rate initially but adjust it later, trading early savings for potential further payment hikes.

Yes, you can refinance an ARM into another ARM for better terms, or a fixed-rate mortgage for stability. Refinancing is subject to qualification (credit, income, and equity requirements) and market conditions. Note that closing costs apply.

The SOFR index determines whether your interest rate goes up or down after the initial fixed-rate period. During the adjustable-rate period, the rate becomes variable based on the SOFR index and a margin set by the lender. While the margin does not change during the life of the loan, the index can vary. An ARM loan will set limits on how high or low the rate may go.