When you shop for a mortgage, lenders quietly offer you two very different bets. A 30-year fixed-rate mortgage locks in one payment for the entire life of the loan — predictable, boring, and safe. An adjustable-rate mortgage (ARM) starts with a lower rate for a set number of years, then floats with the market after that. This calculator compares them side by side so you can see exactly what the ARM saves you today, what it could cost you later, and whether the trade makes sense for how long you actually plan to stay in the home.
The default example uses a $300,000 loan on a 30-year term: the fixed loan at 6.5% runs about $1,896 per month, while a 5/1 ARM at 5.5% runs about $1,703 per month — roughly $193 of monthly breathing room. Whether that $193 is worth the risk depends on how long you keep the loan.
How to Use
- Enter the Loan Amount — the principal you need to borrow, after your down payment.
- Choose the Loan Term. The most common comparison is 30 years, but you can run a 15-year loan through the same model.
- Type your Fixed Rate (APR). If you have a quote, use it; otherwise test the national average and stress-test ±0.5%.
- Enter the ARM Initial Rate (APR) — the teaser rate your lender offers during the fixed period. It is usually 0.5%–1.5% lower than the comparable fixed rate.
- Set the ARM Fixed Period. A 5/1 ARM means five years fixed, then annual adjustment; 7/1 and 10/1 ARMs delay the reset.
- Set your Expected Rate After Reset. This is your honest guess of where rates will be when the loan starts adjusting. Stress-test it — if you assume only a small rise, the ARM looks much better than if you assume rates climb.
- Enter your Planned Years in Home. This is the single most important number: if you expect to sell or refinance before the fixed period ends, the ARM's lower rate is pure savings.
The result card shows the fixed payment, the ARM payment during the initial period, your monthly savings, the estimated ARM payment after the reset, the break-even period, and your estimated savings if you sell on time.
The Math Behind the Comparison
Both loans start from the same amortization formula used by Fannie Mae, Freddie Mac, and every major lender:
M = P × r(1 + r)ⁿ / ((1 + r)ⁿ − 1)
Where P is the loan amount, r is the monthly rate (APR divided by 12), and n is the number of monthly payments. The fixed loan pays this amount for all 360 months. The ARM pays the lower amount during its fixed period, then — the moment the rate resets — we re-amortize the remaining balance at your expected adjusted rate over the remaining months of the term.
The break-even period answers the question: "How many months of lower ARM payments do I need, to recoup one full year of the higher payment that will hit after the reset?" It is the payback window. If your planned years in home are shorter than that window, the ARM wins comfortably. If you expect to stay far beyond it, the fixed loan's certainty is likely worth the extra monthly cost.
Examples
Example 1 — The default comparison. On a $300,000, 30-year loan, the fixed rate at 6.5% costs about $1,896 per month, while the 5/1 ARM at 5.5% costs about $1,703. That is roughly $193 of monthly savings, or about $11,570 over five years. If you plan to sell or refinance within those five years, the ARM is clearly ahead — you never live through the rate reset.
Example 2 — Stressing the reset. Keep the same $300,000 loan but assume rates climb to 8.0% after the five-year fixed period. The ARM payment re-sets to about $2,141 — actually higher than the fixed loan's $1,896. The break-even point lands around 47 months after the reset — roughly four years of higher payments needed to erase the upfront savings. Sell within the five-year fixed window and you never feel it; hold past the nine-year mark and the post-reset penalty erases the savings, making the fixed loan the safer bet.
Example 3 — A jumbo loan. On a $1,200,000 loan at 6.5% fixed vs 5.5% ARM, the monthly gap widens to about $771. Over a five-year holding period that is nearly $46,000 of savings — which is why ARMs are popular with borrowers who move frequently, even though the rate-reset risk on a large balance is far scarier.
FAQ
What does 5/1 ARM actually mean?
A 5/1 ARM keeps your interest rate fixed for the first five years. After that, the rate adjusts once per year ("1" = annual adjustment) based on an index plus a lender margin. The 5 is your safe window; everything after it floats.
Is an ARM cheaper than a fixed mortgage?
During the initial fixed period, yes — usually by 0.5%–1.5% in rate, which translates to meaningful monthly savings. The ARM only becomes more expensive than the fixed loan if rates rise enough after the reset that the adjusted payment exceeds the fixed loan's payment. The calculator shows you exactly where that crossover sits.
When does an ARM make sense?
An ARM makes sense when you are confident you will sell or refinance before the fixed period ends — for example, if you expect to relocate for work, upgrade the house in a few years, or refinance into a better rate once your credit improves. It is a poor fit if you want to stay in the home for the full 30 years and never want to think about your mortgage payment again.
What is the break-even period?
The break-even period is how many months of the higher, post-reset ARM payment it takes to erase the lower payments you enjoyed during the fixed period. On the default $300,000 example, you save about $193 a month for 60 months (roughly $11,570), then pay about $245 a month more after the reset — so the payback lands around 47 months after the reset. If your planned holding period is shorter than that, the ARM is a clear win; if you expect to stay much longer, the fixed rate's predictability is usually the better value.
What happens if rates rise after my ARM resets?
Your monthly payment is recalculated on the remaining balance at the new rate. On a $300,000 loan, moving from 5.5% to 8.0% after a five-year fixed period pushes the payment from about $1,703 to roughly $2,141 — a jump of around $438 per month. This is the central risk of an ARM, and why the "Expected Rate After Reset" field matters so much.
Should I choose a 5/1, 7/1, or 10/1 ARM?
The longer the fixed period, the higher the initial rate usually is, but the longer your safety window. A 7/1 or 10/1 ARM costs a little more per month but delays the reset, which is useful if you think you may keep the loan a bit longer. Match the fixed period to your realistic timeline, not your hope.
Can I refinance out of an ARM before it resets?
Yes — and that is the standard escape hatch. Many ARM borrowers refinance into a new fixed loan (or another ARM) before the first adjustment. Factor closing costs into that decision, because refinancing usually costs 2%–5% of the loan amount.
Related Calculators
- Mortgage Payment Calculator — estimate your total monthly P&I for any loan amount and rate.
- Amortization Calculator — see how principal and interest pay down month by month.
- Cash-Out Refinance Calculator — compare refinancing costs against the equity you pull out.
- Balloon Mortgage Calculator — model loans with a large lump-sum payoff at the end.
- Refinance Calculator — decide whether a lower rate beats your closing costs.
Disclaimer
This fixed-vs-ARM calculator is provided for informational purposes only and does not constitute financial, lending, or tax advice. Estimates are based on the inputs you enter and the standard amortization formula; actual ARM rates, index margins, adjustment caps, and reset terms vary by lender and by program. The "Expected Rate After Reset" is a user assumption, not a forecast. Always confirm your final loan offer, adjustment caps, and prepayment terms directly with a licensed mortgage professional before committing.