ARM vs. Fixed Rate Mortgage
A lower ARM rate saves money early but carries reset risk. Compare it against a fixed-rate mortgage to weigh the trade-off.
A worked example
Running this tool on current national benchmarks (Federal Reserve / Freddie Mac via FRED (St. Louis Fed)) — swap in your own numbers to see how the result moves.
- Loan amount
- $320,000
- Loan term (years)
- 30
- ARM initial rate
- 5.50%
- Fixed rate
- 6.75%
- ARM fixed period (years)
- 5
- ARM rate after reset
- 7.50%
$258.59/mo lower for 5 years
- ARM initial payment$1,816.92
- ARM payment after reset$2,186.48
- Fixed payment$2,075.51
How the saved during the ARM intro period changes with loan amount
Holding the other inputs at the example above, here is how the result moves as loan amount changes.
| Loan amount | Saved during the ARM intro period | ARM initial payment |
|---|---|---|
| $150,000 | $7,273 | $851.68 |
| $250,000 | $12,121 | $1,419.47 |
| $325,000 | $15,758 | $1,845.31 |
| $475,000 | $23,031 | $2,697.00 |
| $650,000 | $31,516 | $3,690.63 |
The math behind it
The calculator amortizes the loan two ways: at the ARM's lower initial rate and at the fixed rate, over the same term. The gap between those payments, multiplied by the months in the ARM's fixed period, is your intro-period savings. It then rolls the ARM forward — fixed rate during the intro, then re-amortized at your estimated reset rate — and totals its lifetime interest against the fixed loan's, so you can weigh early savings against long-run cost.
Assumptions & limits
- The ARM resets once, at the end of the fixed period, then holds at the rate you enter for the rest of the term. Real ARMs can adjust repeatedly.
- The reset rate is your estimate, not a forecast. Actual resets follow an index plus margin, limited by caps.
- Both loans use the same amount and term. Payments are principal and interest only — taxes, insurance, and mortgage insurance are excluded.
- Rate caps are not enforced; the ARM uses whatever reset rate you type.
Source: Freddie Mac PMMS via FRED. Annual averages; latest weekly reading shown.
Common questions
When does the ARM actually save me money?
During the initial fixed period, when its rate is below the fixed loan's. The calculator sums that monthly gap over the intro years. Whether the ARM wins over the full term depends on the reset rate — if it climbs high enough, the lifetime interest can exceed the fixed loan's.
Is the ARM's lifetime interest always higher?
No. If the reset rate stays close to or below the fixed rate, the ARM can end up cheaper overall thanks to the early savings. It only runs more expensive when the post-reset rate is high enough to overtake the head start. The comparison here shows both totals side by side.
How do I decide between them?
Match the loan to your timeline. If you are confident you will sell or refinance before the fixed period ends, the ARM captures cheap early payments with no reset exposure. If you plan to stay long term, the fixed rate removes the risk of a payment jump you cannot control.