Compare Fixed vs. Adjustable-Rate Loan Costs
The Adjustable Loan APR vs. Fixed Loan APR Calculator simulates both loan types month-by-month over the full term.
For a $300,000, 30-year loan: the fixed payment is $1,896.20 at 6.5%, the ARM starts at $1,703.37 at 5.5%, saving $192.84/month initially.
Over 30 years, the ARM saves $69,421 in total interest ($382,633 fixed vs $313,212 ARM).
The Loan Comparison Insights panel shows total interest for both loans, final ARM rate, worst-case rate, and a Total Interest Comparison breakdown.
The Simulation Logic
The calculator runs two parallel amortization simulations — one fixed, one ARM — and compares results:
Fixed-Rate:
fixedPayment = loanAmount x [monthlyRate x (1 + monthlyRate)^totalMonths] / [(1 + monthlyRate)^totalMonths - 1]
ARM (at each adjustment period):
fullyIndexedRate = indexRate + margin
newRate = min(currentRate + periodicCap, max(currentRate - periodicCap, fullyIndexedRate))
cappedRate = min(newRate, initialRate + lifetimeCap)
armPayment = recalculated on remaining balance at cappedRate for remaining months
The ARM payment is recalculated at each adjustment based on the current balance and remaining term.
Additional metrics — total interest for both loans, final ARM rate, and worst-case rate — appear in the Loan Comparison Insights panel.
$300,000 Mortgage: 6.5% Fixed vs. 5.5% ARM
A homebuyer compares a 30-year fixed at 6.5% against an ARM starting at 5.5% (2.5% margin, 3% index, annual adjustments, 2% periodic cap, 5% lifetime cap).
- Fixed Monthly Payment: $1,896.20 — constant for 30 years at 6.5%.
- ARM Initial Payment: $1,703.37 — starting rate of 5.5%.
- Initial Monthly Savings: $1,896.20 - $1,703.37 = $192.84 per month ($2,314/year).
- Fixed Total Interest: $382,633 over 30 years.
- ARM Total Interest: $313,212 over 30 years.
- ARM Interest Savings: $382,633 - $313,212 = $69,421 — ARM pays less overall.
In this scenario the ARM rate stays at 5.5% because the fully indexed rate (3% + 2.5%) equals the initial rate.
The Loan Comparison Insights panel also shows: final ARM rate of 5.50%, and worst-case ARM rate of 10.50% (5.5% + 5% lifetime cap).
The Total Interest Comparison bar shows ARM interest ($313,212) plus ARM savings ($69,421) equaling the fixed total ($382,633).
When ARMs Make Sense — and When They Don't
In the default scenario, the ARM wins because the fully indexed rate matches the initial rate — no adjustments occur.
But change the index rate to 5% (fully indexed = 7.5%), and the ARM would cost significantly more than the fixed loan.
ARM borrowers should consider: (1) how long they plan to keep the loan — if selling within 5-7 years, the initial savings may outweigh adjustment risk; (2) whether rates are likely to rise — if the index rate is near historic lows, there's more upside risk; (3) worst-case affordability — at the 10.5% lifetime cap, payments would approach $2,700/month, $800+ above the fixed payment.
The year-by-year comparison table shows exactly when the ARM payment crosses the fixed payment, helping identify the break-even point.
Regulatory Protections for ARM Borrowers
Since the Dodd-Frank Act of 2010, ARM borrowers benefit from stronger consumer protections: mandatory rate cap disclosures, clearer adjustment notifications, and prohibitions on certain risky ARM structures.
Most ARMs now use the Secured Overnight Financing Rate (SOFR) as their benchmark, replacing the discontinued LIBOR.
SOFR is considered more transparent and robust, being based on actual overnight Treasury repurchase transactions.
Lenders must provide ARM borrowers with a worst-case payment scenario at origination, giving borrowers the information needed to assess whether they can afford potential rate increases.