Adjustable Mortgage Calculator

ARM basics

How an adjustable mortgage rate changes

An ARM adjustment is not simply “today’s rate plus something.” Your note describes a sequence: find the index, add the margin, apply the note’s rounding rule, then enforce the adjustment caps and lifetime limits.

The five pieces of an ARM adjustment

Index
A market-based number named in the loan documents. It can move over time.
Margin
A fixed percentage added to the index. The margin normally stays the same for the life of the loan.
Rounding rule
The note may require the index-plus-margin result to be rounded to a stated increment.
Adjustment caps
Limits on how far the rate may rise or fall at the first change and at later changes.
Lifetime floor and ceiling
The lowest and highest note rates the contract permits over the loan’s life.

The order matters

  1. Add the selected index value and the margin.
  2. Round that result according to the note.
  3. Compare it with the applicable first or periodic adjustment limits.
  4. Apply the lifetime floor and ceiling.
  5. Recalculate principal and interest from the balance and term remaining on the change date.

A calculator that applies rounding or caps in a different order can produce the wrong permitted rate near a boundary.

Why the balance must be projected

Your next payment is not usually calculated from today’s balance. Scheduled payments continue before the new rate takes effect. The balance must first be projected to the change date, then the new principal-and-interest payment is calculated over the months still remaining.

If you already have the loan, a current servicer-reported unpaid principal balance is more useful than the original amount borrowed. Entering your actual scheduled principal-and-interest payment can also make the projection closer to the servicer’s schedule.

The next change is not the lifetime maximum

A lifetime ceiling may be several adjustment periods away. If the current rate is 4% and the periodic upward cap is 1 percentage point, a 9% lifetime ceiling does not make 9% possible at the next change. The rate would first be limited to 5%, then could move again at later permitted changes.

That is why this calculator separates the next permitted payment from a later step-by-step stress path.

What to have in front of you

Open the calculator