Adjustable Rate Mortgage Calculator

At each adjustment date, your lender takes the current index value (most commonly SOFR today), adds your fixed margin, and rounds to the nearest 0.125% to set your new rate, subject to your loan’s rate caps. Most modern ARMs adjust every six months once the initial fixed period ends, which is what the second number in a label like 5/6 or 7/6 refers to.

The three numbers represent three separate limits: the first caps how much your rate can rise at the very first adjustment, the second caps how much it can rise at every adjustment after that, and the third caps the total rise over the entire life of the loan compared to your starting rate. A 2/2/5 structure starting at 6% could reach at most 8% at the first adjustment and never exceed 11% for the life of the loan.

Most ARMs originated since 2021 are indexed to SOFR, the Secured Overnight Financing Rate, which replaced LIBOR. Your lender adds a fixed margin, typically 2% to 3.5%, to whatever the current SOFR value is at each adjustment date to calculate your new rate.

No. Under the Ability-to-Repay rule established by Dodd-Frank, lenders must qualify ARM borrowers using the higher of the loan’s fully indexed rate (index plus margin) or the intro rate plus 2%, not the low teaser rate itself. This prevents borrowers from being approved for a payment they couldn’t actually afford once the rate adjusts.

It depends heavily on your timeline. If you’re confident you’ll sell or refinance before the fixed period ends, an ARM’s lower intro rate can save real money with limited downside. If there’s a real chance you’ll still be in the home when the rate adjusts, you need to be comfortable affording the worst-case payment under your loan’s caps, not just the intro payment.

Both have a 5-year fixed intro period. A 5/1 ARM (the older structure, typically LIBOR-indexed) adjusts once per year after that. A 5/6 ARM (the current SOFR-indexed standard) adjusts every six months after the fixed period ends, which can mean more frequent but often smaller individual rate movements.

The floor is the lowest your rate can ever go, and it’s commonly set equal to your margin. Even if the index value drops to zero, your rate generally can’t fall below this floor, which is worth knowing if you’re hoping for a best-case scenario where your rate drops significantly at adjustment.

Yes, and many ARM borrowers plan to do exactly this, refinancing into a fixed-rate loan or a new ARM before the intro period ends. This strategy depends on rates and your qualification profile remaining favorable when the time comes, which isn’t guaranteed, so it’s worth having a backup plan if refinancing isn’t available.

Yes, significantly. Extra principal payments during your fixed intro period reduce the balance your new rate applies to once the loan adjusts, directly shrinking your post-adjustment payment. Our Extra Payments Calculator can model exactly how much a recurring extra payment during your fixed years would reduce your balance before the first adjustment.

The intro rate only applies for a few years, but the margin is fixed for the entire life of the loan and directly determines every rate you’ll ever be charged after the fixed period ends. A half-point difference in margin between two lenders means a half-point difference in your rate at every single future adjustment.

Yes, if the index value falls enough between adjustments, your rate and payment can decrease, subject to your loan’s periodic cap and rate floor. This has happened historically during periods of falling short-term rates, though it’s not something to count on when deciding whether to take an ARM.

No. While 2/2/5 has become the most common structure under current qualified-mortgage standards, some lenders and loan programs use 2/1/5, 5/2/5, or other combinations. Always confirm your loan’s exact cap structure on your Loan Estimate rather than assuming a standard number applies.