ARM vs Fixed Rate Comparison

Compare adjustable-rate and fixed-rate mortgages for your situation.

Loan Details

Loan Amount

Loan Term

Planned Hold: 7 years

Fixed Rate

Interest Rate: 7.25%

ARM Details

Initial Rate: 6.25%

Fixed Period

Lifetime Cap: 5%

Expected Rate Increase: 2%

Fixed Rate Mortgage

Monthly Payment

$2,729

Same for 30 years

Interest Rate7.25%

Total Interest$582,334

Paid in 7 years$229,211

Predictable payments

No rate adjustment risk

5/1 ARM

Initial Payment (Years 1-5)

$2,463

Save $266/mo

After Adjustment

$2,944

+20% increase

Initial Rate6.25%

Adjusted Rate8.25%

Paid in 7 years$218,420

Recommendation for 7-Year Hold

5/1 ARM is Better

You'll save $10,791 over 7 years

$10,791

Break-even point: ARM becomes more expensive than fixed after year 12

Worst Case Scenario (ARM)

Max Rate

11.25%

Max Payment

$3,727

vs. Fixed

+$998

If rates hit the lifetime cap, your ARM payment could be $998 more than the fixed rate option.

When to Choose Each Option:

Choose Fixed If:

Planning to stay 7+ years
Want payment stability
Rates are historically low
Risk-averse borrower

Choose ARM If:

Selling/refinancing within 5 years
Need lower initial payments
Expect rates to drop
Can handle payment increases