ARM vs Fixed Rate Mortgage

An ARM's lower start rate is tempting, but the reset is the question. We model both loans against your planned hold and surface the break-even. Estimates only

Rates after the fixed period are uncertain. No one can predict where ARM index rates will be in 5 to 10 years. The post-reset rate field is your assumption; try several values before committing to an ARM.

Your Numbers

Loan amount

30-year fixed rate, %

ARM start rate, %

ARM fixed period

Assumed post-reset rate, %

Your assumption. Try 1% to 3% above the start rate to stress-test.

Planned hold period, years5 yrs

Time horizon for totals, years10 yrs

Side-by-Side over 10 years

30-Year Fixed

$2,661 /mo

monthly P&I, fixed for life

Total interest, 10 yrs: $262,595
Interest through 5-yr hold: $136,199
No reset risk

7-yr ARM

$2,463 /mo

monthly P&I during fixed period

Total interest, 10 yrs: $251,377
Interest through 5-yr hold: $121,121
Post-reset payment est: $3,174/mo

Total interest over 10 years

Fixed$262,595

ARM$251,377

At your 5-year hold

ARM costs $15,078 less in interest than fixed over your hold. ARM still ahead at end of 10-year horizon at your assumptions.

At your assumed post-reset rate, the ARM still costs less than the fixed at the end of your time horizon. The ARM may fit if you are confident you will sell or refinance within the fixed period, OR if you accept the risk that rates after reset are uncertain. If you plan to hold the loan long term and want certainty, fixed is safer.

Assumes 30-year amortization on both loans. ARM payment recalculated at reset over the remaining term at the assumed post-reset rate. Real ARMs have rate caps that may limit how fast the rate can rise; this model uses your single assumed post-reset rate.

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Estimates only. Actual rates, fees, and outcomes vary. Rates after the fixed period are uncertain and depend on the index, margin, and rate caps in the actual ARM note. Not a commitment to lend. All loans subject to qualification. Equal Housing Opportunity.