ARM & Interest Only ARM vs. Fixed Rate Mortgage

Use this calculator to compare a fixed rate mortgage to two types of ARMs, a Fully Amortizing ARM and an Interest Only ARM. A fixed rate mortgage has the same payment for the entire term of the loan. An adjustable rate mortgage (ARM) has a rate that can change, causing your monthly payment to increase or decrease.

A Fully Amortizing ARM could save you SAVINGS_ARM_MONTH per month. An Interest Only ARM could save you as much as SAVINGS_IO_MONTH per month.

A LOAN_AMOUNT Fixed Rate Mortgage with a term of TERM years at INTEREST_RATE0 has a monthly payment of MONTHLY_PI0. If you were to finance this mortgage with a Fully Amortizing ARM at INTEREST_RATE1 the monthly payment would be MONTHLY_PI1, saving you SAVINGS_ARM_MONTH per month. An Interest Only ARM at INTEREST_RATE2 has a MONTHLY_PI2 monthly payment. This could save you SAVINGS_IO_MONTH per month over a Fixed Rate Mortgage.
ARM vs. Fixed Rate Mortgage
 Fully Amortizing ARMInterest Only ARM
Initial savings on monthly paymentSAVINGS_ARM_MONTHSAVINGS_IO_MONTH
Payment savings first yearSAVINGS_ARM_FIRST_YEARSAVINGS_IO_FIRST_YEAR
Payment savings for MSG_FIVE yearsSAVINGS_ARM_FIVE_YEARSAVINGS_IO_FIVE_YEAR
**GRAPH** BREAK_EVEN_NOTE This only applies to the Fully Amortizing ARM vs. Fixed Rate Mortgage.
Results Summary
 Fixed Rate MortgageFully Amortizing ARMInterest Only ARM
Loan amountLOAN_AMOUNTLOAN_AMOUNTLOAN_AMOUNT
TermTERM yearsTERM yearsTERM years
Interest rateINTEREST_RATE0INTEREST_RATE1
Rate is fixed for ADJUSTABLE_MONTHS_FIXED1 months and then is adjusted by ADJUSTABLE_RATE_INCR1 every ADJUSTABLE_RATE_FEQ1 months, up to a maximum of ADJUSTABLE_RATE_CAP1. The highest rate actually charged was HIGHEST_RATE1.
INTEREST_RATE2
Rate is fixed for ADJUSTABLE_MONTHS_FIXED2 months and then is adjusted by ADJUSTABLE_RATE_INCR2 every ADJUSTABLE_RATE_FEQ2 months, up to a maximum of ADJUSTABLE_RATE_CAP2. The highest rate actually charged was HIGHEST_RATE2.
Initial monthly paymentMONTHLY_PI0MONTHLY_PI1MONTHLY_PI2
MSG_FIVE_YEAR_PAYMENTFIVE_YEAR_PAYMENT0FIVE_YEAR_PAYMENT1FIVE_YEAR_PAYMENT2

First year totals:
   
  Interest
  Principal
  Payments

FIRST_YEAR_INTEREST0
FIRST_YEAR_PRINCIPAL0
FIRST_YEAR_TOTAL0
FIRST_YEAR_INTEREST1
FIRST_YEAR_PRINCIPAL1
FIRST_YEAR_TOTAL1
FIRST_YEAR_INTEREST2
FIRST_YEAR_PRINCIPAL2
FIRST_YEAR_TOTAL2

MSG_FIVE_YEAR_TOTALS:
   
  Interest
  Principal
  Payments

FIVE_YEAR_INTEREST0
FIVE_YEAR_PRINCIPAL0
FIVE_YEAR_TOTAL0
FIVE_YEAR_INTEREST1
FIVE_YEAR_PRINCIPAL1
FIVE_YEAR_TOTAL1
FIVE_YEAR_INTEREST2
FIVE_YEAR_PRINCIPAL2
FIVE_YEAR_TOTAL2
Total interestTOTAL_INTEREST0TOTAL_INTEREST1TOTAL_INTEREST2
Total paymentsTOTAL_PAYMENTS0TOTAL_PAYMENTS1TOTAL_PAYMENTS2
Ending balance ENDING_BALANCE0ENDING_BALANCE1ENDING_BALANCE2

Payment schedule

**REPEATING GROUP**

ARM & Interest Only ARM vs. Fixed Rate Mortgage Definitions

Fixed Rate Mortgage
A fixed rate mortgage has the same interest rate and monthly payment throughout the term of the mortgage. The payment is calculated to payoff the mortgage balance at the end of the term. The most common terms are 15 years and 30 years.
Fully Amortizing ARM
This is the most common type of ARM. The monthly payment is calculated to payoff the entire mortgage balance at the end of the term. The term is typically 30 years. After any fixed interest rate period has passed, the interest rate and payment adjusts at the frequency specified. A Fully Amortizing ARM will also have a maximum rate that it will not exceed. Below is a list of the most common types of Fully Amortizing ARMs.
Common Adjustable Rate Mortgages
ARM TypeMonths Fixed
10/1 ARMFixed for 120 months, adjusts annually for the remaining term of the loan.
7/1 ARMFixed for 84 months, adjusts annually for the remaining term of the loan.
5/1 ARMFixed for 60 months, adjusts annually for the remaining term of the loan.
3/1 ARMFixed for 36 months, adjusts annually for the remaining term of the loan.
Interest Only ARM
An Interest Only ARM only requires monthly interest payments. Since you are not paying any principal, as you are with the other two types of mortgages described above, this can lower your monthly payment. However, since your mortgage's principal balance is not decreased, you will have a balloon payment at the end of the mortgage's term. Like a Fully Amortizing ARM, an Interest Only ARM will often have a period where the interest rate is fixed, and then it is adjusted annually. An Interest Only ARM will also have a maximum interest rate that it will not exceed. This calculator uses a maximum interest rate of 12%.
Mortgage amount
Expected balance for your mortgage.
Term in years
The number of years over which you will repay this mortgage. The most common mortgage terms are 15 years and 30 years. Please note that for the Interest Only ARM you will have a balloon payment for the entire principal balance at the end of the loan term.
Expected rate change
The annual adjustment you expect in your ARM. The range for this calculator is minus 3% to plus 3%. Use a negative value if you believe interest rates will decrease, a positive value if you believe they will increase.
Interest rate
Annual interest rate for each mortgage type. Typically an ARM will have a lower interest rate than a fixed rate mortgage. The rate of an Interest Only ARM will vary by lender.
Months rate fixed
This is the number of months the rate is fixed for an ARM. During this period the interest rate and the monthly payment will remain fixed. The rate will then adjust annually by the expected rate change.
Interest rate cap
This is the maximum interest rate for this mortgage. The mortgage's interest rate will never exceed the interest rate cap.
Monthly payment
Monthly principal and interest payment (PI) for the Fixed Rate Mortgage and the Fully Amortizing ARM. This is an interest only payment for an Interest Only ARM.


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