Adjustable-rate mortgage payments through every reset — best, expected and worst case
$—
Intro Payment
$—
Worst-Case Payment
$—
Fixed-Rate Alternative
Period
Rates stay flat
Rates +1%/adj (capped)
Worst case (max caps)
Remaining balance Interest paid to date Total paid to date
This schedule assumes rates drift up 1%/adjustment after the fixed period, capped by your first/periodic/lifetime caps — the "Rates +1%/adj (capped)" scenario above. Actual resets depend on the index at each adjustment date.
An adjustable-rate mortgage sells you a discount today in exchange for uncertainty later: a fixed intro rate for 3–10 years, then adjustments tied to a market index, bounded by caps. Whether that trade is smart depends on exactly two things — how big the discount is, and what the caps allow afterward. This calculator projects your payment through every reset in three futures (flat rates, drifting rates, and the full worst case), next to the fixed-rate alternative.
Decoding ARM Notation and Caps
A 5/6 ARM: fixed for 5 years, then adjusting every 6 months. A 7/1: fixed 7, adjusting yearly. The caps come as a triplet like 2/1/5:
Cap
Limits
Example (5.875% start, 2/1/5)
First adjustment
The initial reset
Max 7.875% at year 5
Periodic
Each later reset
Max +1% per adjustment after
Lifetime
The ceiling, ever
Never above 10.875%
After the fixed period the rate becomes index + margin (commonly SOFR + ~2.75%), subject to those caps. The worst-case column in the results is not a scare tactic — it's the contract; a borrower who can't survive it is buying a lottery ticket with their house.
When ARMs Make Sense
Your horizon is shorter than the fixed period. Selling or refinancing within 5 years on a 7-year ARM means you bank the discount and never meet an adjustment. This is the classic, defensible case.
The spread is wide. When ARMs price 0.75–1%+ below fixed, the fixed-period savings are large enough to self-insure several resets. When the spread is under ~0.4%, the fixed loan's certainty is cheap — take it.
Rates are likely at a peak. Buyers in high-rate environments sometimes prefer an ARM as a built-in float-down; note that refinancing to fixed later costs closing costs, while the ARM adjusts free — in both directions.
Payment Shock, Quantified
The worst case on a $340,000 5/6 ARM at 5.875% with 2/1/5 caps: payment climbs from $2,011 to roughly $2,780 within three years of the first reset — a 38% jump. History note: pre-2008 ARMs blew up borrowers via teaser rates, negative amortization and no caps; modern qualified-mortgage ARMs underwrite you at the maximum first-adjustment rate, which is why the worst case is survivable by design — for the original borrower's income, anyway.
How to Use the Calculator
Enter the ARM quote: loan, intro rate, fixed period, and its cap triplet (in the Loan Estimate).
Enter the fixed-rate quote you'd take instead.
Read the three scenario columns and the cushion note — the fixed-period savings vs the worst-case exposure is the whole decision, in dollars.
Frequently Asked Questions
What index do modern ARMs use?
Mostly SOFR (Secured Overnight Financing Rate) since LIBOR's retirement, plus a fixed margin of ~2.25–3%. Your rate at each reset = index + margin, bounded by the caps — the lender doesn't choose it.
Can my payment go down?
Yes — if the index falls, resets adjust downward too (floors permitting). ARM holders in falling-rate periods get automatic relief that fixed borrowers must refinance (and pay closing costs) to reach.
What's the difference between a 5/1 and 5/6 ARM?
Adjustment frequency after year 5: yearly (/1) vs every six months (/6). Semiannual ARMs usually carry per-adjustment caps of 1% vs 2%, so the pace of change differs more than the destination.
Do I qualify at the intro rate?
No — qualified-mortgage rules make lenders underwrite ARMs at the higher of the intro rate or the fully-indexed/first-cap rate. That's a feature: it means the worst case was tested against your income.
Should I refinance my ARM before it adjusts?
Run the Refinance Savings Calculator as the fixed period ends: compare the fixed refi against the capped adjustment path. If you'll move within a couple of years, riding one or two resets often beats paying closing costs.
What happened to interest-only and negative-amortization ARMs?
Largely regulated out of the mainstream market post-2008. Interest-only ARMs still exist for jumbo/portfolio borrowers — see the Interest-Only Loan Calculator for that structure.
Is my information private?
Yes — everything runs locally in your browser.
An ARM is a bet you should only place when you can afford to lose it: bank the intro savings, know the worst-case payment cold, and have a real plan — sale, refinance or income — for the first reset. The table above is that plan's first draft.