Adjustable-Rate Mortgage (ARM) vs. Fixed-Rate Mortgage Calculator
Understanding Adjustable-Rate Mortgages (ARMs) vs. Fixed-Rate Mortgages
Choosing between an Adjustable-Rate Mortgage (ARM) and a Fixed-Rate Mortgage is a significant decision that can impact your monthly payments and overall borrowing costs over the life of your loan. Both have distinct advantages and disadvantages, and the best choice often depends on your financial situation, risk tolerance, and how long you plan to stay in your home.
Fixed-Rate Mortgages
A fixed-rate mortgage offers stability and predictability. The interest rate on your loan remains the same for the entire term, typically 15 or 30 years. This means your principal and interest payment will never change, making budgeting much easier. If interest rates in the market rise, your rate is protected. However, if rates fall, you'd need to refinance to take advantage of lower payments.
Adjustable-Rate Mortgages (ARMs)
An ARM, on the other hand, typically starts with a lower interest rate than a fixed-rate mortgage for an initial period (e.g., 3, 5, 7, or 10 years). After this introductory period, the interest rate adjusts periodically based on market conditions. ARMs usually have caps that limit how much the rate can increase per adjustment period and over the lifetime of the loan. While ARMs can offer lower initial payments, they come with the risk that your payments could increase significantly if market rates climb, potentially making them more expensive than a fixed-rate mortgage over time.
Key ARM Terms to Understand:
Initial Fixed-Rate Period: The number of years the interest rate is fixed before it begins to adjust.
Adjustment Frequency: How often the interest rate can change after the initial fixed period (e.g., annually, every 6 months).
Rate Caps: Limits on how much the interest rate can increase. There's typically a periodic adjustment cap (how much it can rise at each adjustment) and a lifetime cap (the maximum rate the loan can ever reach).
When to Consider Each Type:
Fixed-Rate Mortgage: Ideal if you plan to stay in your home long-term, prefer payment stability, and are concerned about rising interest rates.
ARM: Might be suitable if you plan to sell or refinance before the initial fixed period ends, expect interest rates to fall, or can comfortably afford potential payment increases.
This calculator helps you compare the potential total interest paid and monthly payments over the loan term for both a fixed-rate mortgage and an ARM, considering its initial fixed period and potential rate adjustments.
function calculateMortgageComparison() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var initialFixedPeriod = parseInt(document.getElementById("initialFixedPeriod").value);
var initialFixedRate = parseFloat(document.getElementById("initialFixedRate").value) / 100;
var adjustmentFrequency = parseInt(document.getElementById("adjustmentFrequency").value);
var armIncreasePerPeriod = parseFloat(document.getElementById("armIncreasePerPeriod").value) / 100;
var maxArmRate = parseFloat(document.getElementById("maxArmRate").value) / 100;
var loanTerm = parseInt(document.getElementById("loanTerm").value);
var fixedRate = parseFloat(document.getElementById("fixedRate").value) / 100;
var resultsDiv = document.getElementById("results");
resultsDiv.innerHTML = ""; // Clear previous results
if (isNaN(loanAmount) || isNaN(initialFixedPeriod) || isNaN(initialFixedRate) ||
isNaN(adjustmentFrequency) || isNaN(armIncreasePerPeriod) || isNaN(maxArmRate) ||
isNaN(loanTerm) || isNaN(fixedRate) || loanAmount <= 0 || initialFixedPeriod <= 0 ||
adjustmentFrequency <= 0 || loanTerm <= 0 || initialFixedRate < 0 ||
fixedRate < 0 || armIncreasePerPeriod < 0 || maxArmRate < 0) {
resultsDiv.innerHTML = "Please enter valid positive numbers for all fields.";
return;
}
// — Fixed-Rate Mortgage Calculation —
var n_fixed = loanTerm * 12; // Total number of payments
var r_fixed = fixedRate / 12; // Monthly interest rate
var fixedMonthlyPayment = (loanAmount * r_fixed * Math.pow(1 + r_fixed, n_fixed)) / (Math.pow(1 + r_fixed, n_fixed) – 1);
var totalInterestFixed = (fixedMonthlyPayment * n_fixed) – loanAmount;
// — ARM Calculation —
var totalInterestArm = 0;
var currentArmRate = initialFixedRate;
var remainingLoanTerm = loanTerm;
var principalRemaining = loanAmount;
var armMonthlyPayment = 0;
var currentYear = 0;
var yearInLoanTerm = 1;
var adjustmentCount = 0;
while (yearInLoanTerm <= loanTerm) {
var yearsInThisPhase = Math.min(adjustmentFrequency, loanTerm – (yearInLoanTerm – 1));
if (yearInLoanTerm maxArmRate) {
currentArmRate = maxArmRate;
}
adjustmentCount++;
var n_phase = yearsInThisPhase * 12;
var r_phase = currentArmRate / 12;
if (r_phase === 0) { // Handle 0 interest rate to avoid NaN
armMonthlyPayment = principalRemaining / n_phase;
} else {
armMonthlyPayment = (principalRemaining * r_phase * Math.pow(1 + r_phase, n_phase)) / (Math.pow(1 + r_phase, n_phase) – 1);
}
// Approximate interest for the phase. More accurate calculation is complex.
// We'll use a simplified approach: calculate payment for the remaining term at the current adjusted rate
// and sum up the interest.
}
yearInLoanTerm += yearsInThisPhase;
}
// Recalculate ARM total interest with a more accurate month-by-month simulation
totalInterestArm = 0;
principalRemaining = loanAmount;
currentArmRate = initialFixedRate; // Start with initial rate for the first phase
for (var year = 1; year initialFixedPeriod && (year – 1) % adjustmentFrequency === 0) {
// It's time to adjust the rate (except for the very first year if it's > initialFixedPeriod and adjustmentFrequency is 1)
if (year > initialFixedPeriod) {
currentArmRate += armIncreasePerPeriod;
if (currentArmRate > maxArmRate) {
currentArmRate = maxArmRate;
}
rateForThisYear = currentArmRate;
}
} else if (year <= initialFixedPeriod) {
rateForThisYear = initialFixedRate;
}
var r_monthly = rateForThisYear / 12;
var n_remaining_months = (loanTerm – year + 1) * 12;
var monthlyPayment;
if (r_monthly === 0) {
monthlyPayment = principalRemaining / n_remaining_months;
} else {
monthlyPayment = (principalRemaining * r_monthly * Math.pow(1 + r_monthly, n_remaining_months)) / (Math.pow(1 + r_monthly, n_remaining_months) – 1);
}
for (var month = 0; month < 12; month++) {
if (principalRemaining principalRemaining) { // Handle final payment adjustments
principalThisMonth = principalRemaining;
monthlyPayment = interestThisMonth + principalRemaining;
}
totalInterestArm += interestThisMonth;
principalRemaining -= principalThisMonth;
}
if (principalRemaining <= 0) break; // Loan paid off
}
// Calculate ARM final monthly payment based on the rate in the last year
var r_monthly_final = currentArmRate / 12;
var n_remaining_months_final = (loanTerm – (loanTerm – 1)) * 12; // The last year of the loan
var finalYearMonthlyPayment;
if (r_monthly_final === 0) {
finalYearMonthlyPayment = principalRemaining / n_remaining_months_final;
} else {
finalYearMonthlyPayment = (principalRemaining * r_monthly_final * Math.pow(1 + r_monthly_final, n_remaining_months_final)) / (Math.pow(1 + r_monthly_final, n_remaining_months_final) – 1);
}
var fixedMonthlyPaymentFormatted = fixedMonthlyPayment.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var totalInterestFixedFormatted = totalInterestFixed.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var finalYearMonthlyPaymentFormatted = finalYearMonthlyPayment.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
var totalInterestArmFormatted = totalInterestArm.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 });
resultsDiv.innerHTML = `
Comparison Results
Fixed-Rate Mortgage (${(fixedRate * 100).toFixed(2)}% for ${loanTerm} years)
Estimated Monthly Principal & Interest Payment: $${fixedMonthlyPaymentFormatted}
Estimated Total Interest Paid Over ${loanTerm} Years: $${totalInterestFixedFormatted}
Adjustable-Rate Mortgage (ARM)
Initial Fixed Rate: ${(initialFixedRate * 100).toFixed(2)}% for ${initialFixedPeriod} years
Adjustment Frequency: Every ${adjustmentFrequency} year(s)
Max Rate Increase Per Period: ${(armIncreasePerPeriod * 100).toFixed(2)}%
Lifetime Maximum Rate: ${(maxArmRate * 100).toFixed(2)}%
Estimated Monthly Payment in Final Year (at max rate or current rate): $${finalYearMonthlyPaymentFormatted}
Estimated Total Interest Paid (Simulated): $${totalInterestArmFormatted}
Note: ARM interest and payment calculations are simulations and depend heavily on future interest rate movements.