# ARM vs. Fixed Rate Mortgage Calculator

## ARM vs. Fixed Rate Mortgage Calculator

After deciding to purchase a home, you must determine what type of mortgage loan will be most suitable for you; one with fixed monthly payments or payments that may be variable (ARM). Without comparing the obligations, you could be limiting your options. By adding a few details to the calculator, like the loan amount and financing details, you can quickly find out the cost of either loan. However, it's likely that your decision will rest on many other factors such as your credit score and future plans. If you continue reading you can find out the considerations between a fixed or adjustable mortgage.

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You have two options for your mortgage loan payments, one where the interest rate is fixed over the length of the loan and the other where the interest rate will vary according to market fluctuations, known as the adjustable rate mortgage (ARM). Within the fixed or variable rate loans you may also be given an option of an interest-only mortgage where you pay only the interest for your term, but then you are expected to pay back the full principal once the term ends.
How an adjustable rate mortgage works
An adjustable rate mortgage always begins as a fixed rate mortgage for an introductory period, which may last anywhere from three years to ten years, before any rate adjustments take place. For common ARM intervals, please see the table below. The interest rate on the introductory period of a variable mortgage is often lower than a fixed mortgage, making it harder to qualify for this type of loan.
However, once the fixed period ends, the interest rate will adjust annually based on your margin and the performance of a rate index. A margin is a pre-set percentage that will be added on to your selected rate index and will vary by lender, while a rate index is an average rate used by different banks to determine how much they are willing to lend to other financial institutions. There are many rate indexes that could be selected for your adjustable rate mortgage such as LIBOR, COFI, or MTA.
Common ARM intervals
 ARM Type Months Fixed 10/1 ARM Fixed for 120 months, adjusts annually for the remaining term of the loan. 7/1 ARM Fixed for 84 months, adjusts annually for the remaining term of the loan. 5/1 ARM Fixed for 60 months, adjusts annually for the remaining term of the loan. 3/1 ARM Fixed for 36 months, adjusts annually for the remaining term of the loan.
Which mortgage right for me?
An adjustable rate mortgage is most beneficial for homeowners that have an excellent credit score, as most choose this loan for the initial lower payment with the intention to refinance or sell the home within the introductory period. Therefore, if you know the loan you have will be short-lived, it may be worth considering an ARM, but if your future is uncertain, a fixed rate mortgage may be a better option.
A fixed rate mortgage is more effective for homeowners that plan to stay in their home for awhile and enjoy the stability of fixed payments. Homebuyers that may not be as comfortable with lengthy contracts will likely choose a fixed mortgage because it is easier to understand too. Plus, with a fixed mortgage you can have peace of mind locking in a fair interest rate for a long time, instead of taking a gambling on future rates.
What is this calculator for?
The ARM vs. fixed rate mortgage calculator is very simple to use and is designed to help you compare three mortgage payments. It requires precise information about your loan options to provide you with accurate results. It is best to have done some preliminary research on the rates available to you, as rates can vary based on:
• • economic conditions
• • applicant credit score
• • home location
• • loan amount
• • down payment
• • loan term
• • loan type
How to use the calculator
The ARM vs fixed rate mortgage calculator is comprised of two parts: an information section and integrated results. Within the information section is three subsections detailing your loan information , ARM fully amortizing information, and ARM interest only information.
1. Once you can say with certainty how much home you can afford, you may start by adding your mortgage amount to the first line of the calculator.
2. On the second line of the calculator you should select your term in years by using the drop down menu where you may select a term length between 10 and 50 years.
3. Include your expected rate change on the third line of the calculator, which is the annual rate of adjustment of your ARM.
4. On the fourth line of the calculator document the interest rate you are expecting on your fixed rate mortgage loan.
In the next section, you may start to document your variable rate information.
ARM fully amortizing
1. On the fifth line of the calculator add the interest rate on your potential variable mortgage.
2. Next, include the months the rate is fixed for the ARM on the sixth line of the calculator using the common ARM interval table above if needed. During this period the interest rate and the monthly payment will remain unchanged.
3. On the seventh line of the calculator, you can specify the interest rate cap on your adjustable rate mortgage. This is the maximum interest rate for the mortgage that cannot be exceeded.
ARM interest only
The information in this section should be fairly similar to the previous section.
1. Add your interest rate, months rate is fixed, and interest rate cap on the eighth, ninth, and tenth lines of the calculator, referring to the previous subsection if needed.
2. Finally, your amortization report may be provided annually or monthly, depending on your selection here.