ARM Calculator
Model an adjustable-rate mortgage (5/1, 7/1, or 10/1) with rate caps, intro period payments, and worst-case scenarios. Uses the current Freddie Mac 5/1 ARM rate of 5.77% (April 2026) and standard 2/2/5 cap structure.
Last updated: April 2026 · Source: Freddie Mac PMMS, April 2, 2026; Dodd-Frank ATR rule
Your guess at index + margin when intro ends
ARM payment scenarios
| Scenario | Rate | Monthly P&I | vs intro |
|---|---|---|---|
| Intro period (years 1-5) | 5.77% | $2,339 | baseline |
| After first adjustment | 7.50% | $2,743 | +$403 |
| Worst case (lifetime cap) | 10.77% | $3,555 | +$1,216 |
| 30yr fixed alternative | 6.46% | $2,518 | no adjustment |
Modify rate caps and expected post-intro rate above to see how different scenarios affect your payment. Most modern ARMs use 2/2/5 caps under federal QM rules.
Frequently asked questions
What is an adjustable-rate mortgage (ARM)?
An ARM is a mortgage where the interest rate stays fixed for an initial period (typically 5, 7, or 10 years) and then adjusts periodically based on a market index — usually the SOFR (Secured Overnight Financing Rate) plus a fixed margin set by your lender. The "5/1" in 5/1 ARM means 5 years of fixed intro rate, then adjusts once per year. A 7/6 ARM adjusts every 6 months after the first 7 years. ARMs typically have a lower starting rate than a 30-year fixed, but you accept the risk that rates could rise significantly after the intro period ends.
How much lower is an ARM rate compared to a 30-year fixed?
As of April 2026, the 5/1 ARM intro rate averages about 5.77%, compared to 6.46% for a 30-year fixed — a 0.69% spread. On a $400,000 loan, that translates to roughly a $170/month payment difference during the intro period, or about $10,000 in savings over 5 years. The spread widens when the yield curve is flat (like late 2025) and narrows or even inverts when the yield curve is inverted. Always check current rates before assuming an ARM offers meaningful savings.
What are rate caps and how do they protect me?
Rate caps limit how much your interest rate can change. Standard ARM caps are written as three numbers (e.g., "2/2/5") meaning: (1) 2% maximum increase at the first adjustment, (2) 2% maximum increase at each subsequent adjustment, (3) 5% maximum lifetime increase from the intro rate. Example: a 5/1 ARM at 5.77% with 2/2/5 caps could go up to 7.77% at year 6 (max 2% jump), then 9.77% at year 7, then capped at 10.77% lifetime. Some loans use 5/2/5 caps (5% first adjustment instead of 2%) — much riskier.
When does an ARM make sense?
Three scenarios: (1) You plan to sell or refinance before the intro period ends — common for buyers who expect a job change, growing family that will need a different home, or investors flipping properties. (2) You expect rates to fall significantly during your intro period and plan to refinance into a fixed rate later. (3) The rate spread between ARM and fixed is exceptionally wide (1%+), making the savings worth the risk even if you stay through adjustments. ARMs are NOT a good idea if you plan to stay in the home long-term and have no clear exit strategy.
What is the worst-case scenario with an ARM?
In the worst case, your rate hits the lifetime cap (typically intro + 5%). For a 5/1 ARM at 5.77%, that means 10.77% — your monthly payment could roughly double from $2,335 to about $3,650 on a $400K loan. Most ARMs reach their lifetime cap only in extreme rate environments — rates would have to rise faster than they did in 2022 to fully hit the cap. Still, you should be able to afford the worst-case payment before signing an ARM. Lenders are required to qualify you at the higher of the fully-indexed rate or the intro rate + 2%.
How is the new ARM rate calculated after the intro period?
The formula is: Index + Margin = New Rate, then capped by the rate caps. The "index" is a market interest rate that fluctuates — most modern ARMs use SOFR (replaced LIBOR after 2021). The "margin" is a fixed number set by your lender at origination, typically 2.5-3.0%. Example: if SOFR is 4.5% at adjustment time and your margin is 2.75%, your new rate would be 7.25% — capped at whatever your specific cap allows. The margin never changes; only the index does.
Can I refinance an ARM into a fixed-rate mortgage?
Yes, this is the most common ARM exit strategy. You can refinance at any time during the loan, though you will pay closing costs (typically 2-5% of the loan amount). The key question is whether fixed rates at the time of refinance are lower than your ARM's adjusted rate plus closing costs. Many ARM borrowers refinance shortly before their first adjustment to lock in a fixed rate. If you wait until after the adjustment, you may face a higher current rate environment AND a higher home value (potentially helping your loan-to-value ratio).
Are ARM mortgages riskier today than before 2008?
Modern ARMs are significantly safer than pre-2008 versions for three reasons: (1) The Dodd-Frank Act (2010) banned the worst features — pay-option ARMs, negative amortization, and "teaser rates" that bear no relation to actual market rates. (2) The Ability-to-Repay rule requires lenders to qualify you at the fully-indexed rate, not just the intro rate. (3) ARMs now make up only about 8% of mortgages, down from 35%+ before 2008. The 5/1 and 7/1 fixed-period ARMs offered today are generally safe products, though still riskier than fixed-rate mortgages.
What does "5/1" or "7/6" mean exactly?
The first number is the intro period in years. The second number is how often the rate adjusts after the intro period ends. 5/1 = 5 years fixed, then adjusts once per year. 7/1 = 7 years fixed, annual adjustments after. 7/6 = 7 years fixed, then adjusts every 6 months. 10/1 = 10 years fixed, annual adjustments. The longer the intro period, the higher the starting rate (closer to a 30-year fixed) but the more time before any adjustment risk kicks in. 7/1 and 10/1 ARMs are popular for borrowers who want a longer "safe" period.
Do I qualify based on the intro rate or the fully-indexed rate?
Federal law (Dodd-Frank ATR rule) requires lenders to qualify you based on the higher of: (1) the fully-indexed rate, or (2) the intro rate + 2%. This protects against payment shock by ensuring you could afford the loan even after the first adjustment. Example: an ARM with a 5.77% intro rate must be qualified at minimum 7.77% (or higher if the index + margin is greater). This means your debt-to-income ratio is calculated against the higher payment, not the lower intro payment.
Should I get a fixed rate or ARM in 2026?
For most homeowners planning to stay long-term, the fixed-rate mortgage is still the safer choice in 2026. The current 0.69% spread between 5/1 ARM and 30-year fixed is modest — meaningful but not overwhelming. ARMs become more attractive when: (1) the spread is 1%+, (2) you have a clear plan to leave or refinance within 5-7 years, (3) you can comfortably afford the worst-case adjusted payment, or (4) you expect rates to fall substantially in the next few years. If none of those apply, the certainty of a fixed rate is usually worth the modest premium.
What is the difference between an ARM and an interest-only loan?
They are different products. An ARM has a variable interest rate that adjusts over time, but you always pay both principal and interest each month. An interest-only loan lets you pay only the interest portion for a fixed period (typically 5-10 years), with no principal reduction during that time — meaning you build no equity. Some loans combine both features ("interest-only ARMs") and are particularly risky. Interest-only loans are now relatively uncommon and generally restricted to high-net-worth borrowers, while standard ARMs are widely available to all borrowers.
Data sources: Freddie Mac Primary Mortgage Market Survey (PMMS), April 2, 2026; Dodd-Frank Wall Street Reform Act (2010) Ability-to-Repay rule; Consumer Financial Protection Bureau ARM disclosures.
Last updated: April 2026.
Disclaimer: This calculator provides estimates based on user inputs. Actual ARM rates depend on the index (typically SOFR), the lender\'s margin, and your individual credit profile. Always read the loan estimate carefully before signing — ARM disclosures are required by federal law.