There are two main types of mortgages; adjustable-rate mortgages (ARMs) and fixed-rate mortgages. Adjustable-rate mortgages can provide attractive interest rates, but your monthly payment amount can vary throughout the entire term of the mortgage.

Typically, an adjustable-rate mortgage offers an interest rate that is lower than a fixed-rate mortgage. Depending on how often the mortgage rate adjusts and in what direction (go up or go down), ARMs can cost a borrower more or less money in the long run compared to a fixed-rate mortgage.

Why use the ARM vs. Fixed-Rate Mortgage Calculator?

The ARM vs. Fixed-Rate Mortgage Calculator will compare the monthly mortgage payments for each type of loan. This calculator compares fixed-rate mortgage payments to both fully amortizing adjustable-rate mortgagesand interest-only adjustable-rate mortgages. Knowing exactly how much you stand to gain or lose depending on the different aspects of your mortgage loan can form a crucial part of your decision-making process, and that is how the ARM vs Fixed-Rate Mortgage Calculator can help you.

 

How to use The ARM vs. Fixed-Rate Mortgage Calculator

Not sure where to start? Let us help you:

  1. Enter the amount you intend to borrow in the field marked Mortgage amount
  2. Use the drop-down to select your mortgage term
  3. Input your interest rate
  4. Click the [+] icon to expand the Fully Amortizing ARM options
  5. Enter your initial interest rate
  6. Specify the number of months your loan will be fixed at this rate – in cases with no fixed initial period, this will be 0
  7. Enter the amount by which you expect your mortgage rate to increase, as a percentage
  8. Input the maximum you think the interest rate will reach
  9. Repeat steps 4-8 for the Interest only ARM section (optional)
  10. Click View Report

Who is this Calculator for?

This calculator is most useful if you:

  • Are trying to decide between an ARM, a fixed-rate mortgage, and an interest-only ARM
  • Would like to weigh up the risks and benefits of getting an ARM as opposed to a fixed-rate mortgage
  • Want to compare the total amount of interest you are likely to pay between an ARM and a fixed-rate mortgage.

Should I get an Adjustable-Rate Mortgage or a Fixed-Rate Mortgage?

Since ARMs typically have lower interest rates, it is important to consider how long you will be in the home or how long you will have the mortgage. You also need to consider your ability to deal with possible adjustments in your monthly mortgage payment. If you have the financial flexibility to handle a potential increase in your monthly payments, then it may well be worthwhile taking the lower rate offered by an ARM. After all, if interest rates decrease, so will your monthly payment. Additionally, you are typically able to borrow more on an ARM than you can on a Fixed-Rate Mortgage.

Fixed-rate mortgages have an interest rate that stays the same for the entire term of the mortgage loan. This therefore means that the monthly mortgage payments are fixed for as long as you have the loan – unless you enter into an agreement with your lender where you can pay more or less under particular circumstances.

 The main benefit of this is that you are protected against fluctuations in the interest rate. Therefore, you can plan several years in advance safe in the knowledge that your monthly payments (which is likely to be your biggest regular outgoing) will not change. However, if mortgage rates go down over time, a fixed-rate loan will result in you paying more than you would have with an ARM.

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