Adjustable rate mortgage calculator

What these numbers mean

The worst case payment is the most this loan can ever require, given the caps written into your note. It is not a prediction. It is a ceiling, and it holds regardless of what the index does.

That is the number to plan against. If you can carry the worst case, the rate path stops being something to worry about. If you cannot, then the loan depends on rates behaving, and that is a position rather than a plan.

The payment rises by more than the rate change alone would suggest, because each adjustment re-amortises the remaining balance over the remaining term. A higher rate is applied over fewer years, and both push the same way.

This page does not say whether an ARM is right for you. A lower starting rate is real money, and if you are confident you will sell or refinance inside the fixed period it may never adjust at all. Whether that confidence is warranted is not something a calculator can assess.

How this is calculated

• The current payment is the standard amortising payment at the start rate over the full term.
• The balance at first adjustment comes from amortising at the start rate through the fixed period.
• The first adjustment rate is the start rate plus the initial cap, bounded by the lifetime cap, and the payment re-amortises that balance over the remaining term.
• The ceiling is the start rate plus the lifetime cap. The worst case payment applies that rate to the same balance over the remaining term.

No index and no margin are needed for any of this, which is the point. The caps are contractual, so the ceiling is arithmetic rather than a forecast. A calculator that asks you to predict an index is asking you to do the part nobody can do.

ARM disclosure requirements, including the caps and the index, are set by Regulation Z at 12 CFR 1026.20, and the Consumer Financial Protection Bureau publishes a consumer handbook on adjustable rate mortgages that lenders are required to provide.

What this does not account for

• Where rates actually go. Deliberately. The ceiling is knowable and a rate path is not.
• Rates falling. Adjustments go both ways, and many ARMs have a floor. This shows the upper bound only.
• Payment caps and negative amortisation. A few ARMs cap the payment itself, which can let the balance grow. Rare now, and a materially different product.
• Escrow. Tax and insurance are excluded and move independently.
• Refinancing or selling before the fixed period ends, which is the plan for many ARM borrowers and depends on conditions at the time.
• Interest-only ARMs, where the fixed period pays no principal at all and the adjustment is far sharper.

Questions

What do the numbers in "5/1 ARM with 2/2/5 caps" mean?

The 5/1 is the structure: five years fixed, then adjusting once a year. The 2/2/5 are the caps. The first 2 limits the first adjustment to 2 percentage points. The second 2 limits every adjustment after that. The 5 is the lifetime cap, so the rate can never exceed the start rate plus 5 no matter what the index does. All three are in your loan documents.

Why is there no rate forecast here?

Because nobody knows where the index will be in five years, and a calculator that projects one is presenting a guess as a calculation. What is knowable is the ceiling: the caps are contractual. The worst case is the number to plan against, and if you can afford it the rate path stops mattering.

Can the payment drop as well as rise?

Yes. If the index falls, the rate adjusts down subject to the same periodic cap, and many ARMs also carry a floor below which the rate cannot go. This page shows the ceiling because that is the risk, but the movement is genuinely two-way.

Why does the payment rise by more than the rate suggests?

Because at each adjustment the remaining balance is re-amortised over the remaining term, not the original one. A loan that has run five years of a thirty-year term now has to clear in twenty-five, so a higher rate is being applied over a shorter period. Both effects push the payment the same way.

What index is my rate tied to?

Most US ARMs written since 2021 use SOFR, the Secured Overnight Financing Rate, plus a fixed margin. Older loans commonly used LIBOR and were transitioned by law. Your margin does not change; the index does. Both are named in your note.