About the ARM Payment Calculator
An adjustable-rate mortgage (ARM) has a fixed rate for an initial period — 3, 5, 7 or 10 years — and then resets regularly to an index (today usually 30-day average SOFR) plus a fixed margin. How far the rate can move is limited by three caps: the initial adjustment cap, the periodic cap on each later reset, and the lifetime cap over the start rate. This calculator projects the payment path through all of those rules.
Use it to see what a 5/6 or 7/1 ARM would cost once the teaser period ends, to compare it with a fixed-rate loan, or to stress-test your budget. Besides the scenario you enter (the index can stay flat or drift up or down each year), it shows the worst case: the payment if the rate rises by the maximum allowed at every adjustment until it hits the lifetime cap.
Each time the rate changes, the payment is re-amortized over the remaining term on the outstanding balance, as fully amortizing ARMs do. Real loans may round the fully indexed rate to the nearest 0.125% and may use a different floor; check the caps, margin and floor on your Loan Estimate and ARM disclosure.
With the default inputs, the payment after first adjustment is $2,625.78. Change any value above to recalculate instantly.
How to use the arm payment calculator
- 1Enter the loan amount, start rate and loan term.
- 2Pick the initial fixed period and how often the rate adjusts.
- 3Enter the current index, the margin and any yearly change you expect.
- 4Enter the caps from your ARM disclosure, such as 2/1/5.
- 5Compare the payment after the first reset and the worst case with your budget.
Formula and method
During the fixed period the payment is the normal amortizing payment on the full loan over the full term. At each reset the target rate is the index plus the margin. The change from the previous rate is limited by the initial cap at the first reset and by the periodic cap afterwards, and the result is kept between the floor (the margin, or the start rate if lower) and the lifetime maximum of start rate plus lifetime cap.
After each rate change the payment is recalculated on the remaining balance B over the k months left, at the new monthly rate r. In your scenario the index starts at the value entered and changes by the yearly drift; the worst case assumes the index is high enough that every cap binds upward until the lifetime cap is reached.
- Index
- Benchmark rate the ARM follows, such as 30-day average SOFR
- Margin
- Fixed spread the lender adds to the index
- B
- Outstanding balance at the adjustment date
- k
- Months remaining in the term
Worked examples
$400k 5/6 ARM, 2/1/5 caps, index flat at 4.3%
The start payment at 5.5% is $2,271.16. At the first reset the fully indexed rate is 4.3% + 2.75% = 7.05%, within the 2-point initial cap, so the payment rises to about $2,625.78 on the remaining balance. If every cap binds, the rate climbs to 10.5% and the payment peaks near $3,473.60.
Index rising 0.5% a year
By year 6 the index has risen to 6.8%, so the fully indexed rate of 9.55% is limited by the 2-point initial cap to 7.5% and a $2,733.10 payment. The rate keeps stepping up by the 1-point periodic cap until it reaches the 10.5% lifetime cap, with a highest payment of about $3,473.
$300k 7/1 ARM at 6%, 5/2/5 caps, index falling
After seven years the index has fallen to 1.75%, so the rate resets down to 1.75% + 2.5% = 4.25% and the payment drops from $1,798.65 to about $1,528.52. The worst case — the rate jumping 5 points straight to the 11% lifetime cap — would mean a payment of about $2,681.
Frequently asked questions
How is an ARM rate calculated after the fixed period?+
The new rate is the index (usually 30-day average SOFR for new loans) plus the margin stated in your note, limited by the caps. If SOFR is 4.3% and the margin is 2.75%, the fully indexed rate is 7.05%, unless a cap limits the change.
What do ARM caps like 2/1/5 mean?+
The first number is the most the rate can change at the first adjustment, the second is the most it can change at each later adjustment, and the third is the most it can ever rise above the start rate. A 5.5% loan with 2/1/5 caps can never exceed 10.5%.
What is the difference between a 5/1 and a 5/6 ARM?+
Both are fixed for five years. A 5/1 ARM then adjusts once a year, while a 5/6 ARM adjusts every six months. Most new conforming ARMs are now SOFR-based 5/6, 7/6 or 10/6 loans, often with 2/1/5 caps.
Can an ARM payment go down?+
Yes. If the index falls, the rate resets lower at the next adjustment, subject to the caps and any floor. Many ARMs set the margin as the floor, so the rate cannot fall below it.
Is an ARM a good idea?+
An ARM can save money if you expect to sell or refinance before the fixed period ends, or if rates fall. It is riskier if you plan to stay long-term, so check that you could afford the worst-case payment shown here.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.