Compare an ARM initial payment against a fixed-rate mortgage

The Upfront ARM Savings

ARMs typically start with a rate 0.5-1.5 percentage points below comparable fixed-rate loans. On a 300,000 loan that is often 100-300 units in initial monthly savings, or 6,000-18,000 across a 5-year fixed ARM period. The catch is what happens after reset.

When the ARM Bet Pays Off

ARM saves money when rates stay flat or fall. If rates rise, the reset payment can erase several years of initial savings in one year. The financially safer approach is to treat ARM savings as conditional and only rely on them if you have clear plans to move or refinance before reset.

Run it with sensible defaults

Using loan amount of 300,000, arm initial rate of 5, fixed rate alternative of 6.5, term of 30, the calculation works out to 286.62. Nudge the inputs toward your own situation and the output recalculates instantly. The defaults are meant as a starting point, not a recommendation.

The levers in this calculation

The inputs — Loan Amount, ARM Initial Rate, Fixed Rate Alternative, and Term — do not pull with equal force. Two inputs usually tip the answer one way or the other. Identify which ones matter most by flipping each value past a round threshold and watching whether the winning option changes.

How the math works

Computes standard amortized monthly payment at both rates over the same term. Five-year savings multiplies the monthly difference by 60 months. Results are estimates for illustration purposes only and do not factor in reset risk or rate-cap behavior. The working is transparent — you can verify every step yourself in the formula section below. No black box, no opaque "proprietary model".

What the headline rate hides

Lenders quote a rate; what you pay is a blend of that rate, fees, insurance, and any early-repayment penalty built into the product. The figure here isolates the core interest cost so you can compare like-for-like across deals — then add the other costs separately before signing anything.

What this doesn't capture

The figure excludes arrangement fees, valuation costs, legal fees, insurance, and any early-repayment charges — those can add several thousand to the headline cost. Rate changes at renewal for fixed-term deals will shift the picture further. Use this for the core interest/principal math and add the other costs on top.