How to Use the Fixed vs. ARM Mortgage Interest Comparison
One of the biggest decisions when taking out a mortgage is choosing between a fixed rate and an adjustable rate (ARM). ARMs typically start with a lower rate than a comparable fixed-rate mortgage, but if the index rate rises during your loan term, your payment and total interest can increase. A fixed rate stays the same for the life of the loan, trading a potentially higher starting rate for predictability.
This calculator takes your loan amount, term, fixed rate, and ARM start rate, and computes total interest under standard amortization. For the ARM, it assumes the rate rises each year by the amount in your selected scenario (mild, moderate, or sharp) and recasts the payment on the remaining balance annually, similar to how a real ARM adjusts.
Results are estimates for planning purposes only. Actual ARM adjustments depend on the underlying index, margin, and rate caps set in your loan agreement, so always review the specific ARM disclosure and caps with your lender before deciding.
Frequently Asked Questions
Not necessarily. ARMs usually start with a lower rate than a fixed mortgage, so if rates rise slowly or you plan to pay off or refinance early, an ARM can end up cheaper. Use this calculator to compare total interest under different rate-increase scenarios.
The calculator assumes the rate rises by your selected amount (+0.3, +0.5, or +1.0 percentage points) every year and recalculates the payment on the remaining balance each year. Actual rate changes depend on the index and your loan's adjustment caps.