An Adjustable Rate Mortgage (ARM) Calculator is a financial tool that helps borrowers estimate their monthly payments on a mortgage with an interest rate that changes periodically. Unlike fixed-rate mortgages, ARMs have interest rates that adjust based on market conditions after an initial fixed-rate period.
The formula for calculating the monthly payment on an ARM is similar to that of a fixed-rate mortgage, but it needs to be applied twice: once for the initial rate period and again for the adjusted rate period.
1. For the initial fixed-rate period:
2. For the adjusted rate period, we first calculate the remaining balance:
Then we use this balance to calculate the new payment:
Where:
Let's consider a scenario with the following details:
Calculation:
Green: Initial Monthly Payment | Yellow: Adjusted Monthly Payment
In this example, the borrower would pay $1,347.13 per month for the first 5 years, then the payment would adjust to $1,504.52 for the next adjustment period, assuming no further rate changes.
Note: It's important to understand that with an ARM, your payments can increase significantly over time if interest rates rise. Always consider your long-term financial situation and the potential for rate increases when choosing an ARM.
We can create a free, personalized calculator just for you!
Contact us and let's bring your idea to life.