ARM vs Fixed Mortgage Calculator

It is a reasonable trade when you are confident you will sell or refinance before the introductory period ends, and when you could still afford the capped worst-case payment if you could not. It becomes a bad idea when the low initial payment is what makes the house affordable at all.

A 2/2/5 structure means the rate can rise at most 2 points at the first adjustment, 2 points at each one after, and 5 points above the initial rate over the life of the loan. The lifetime cap is the ceiling — a 5.75% ARM with a 5-point cap can never exceed 10.75%.

Typically half a point to a point and a half below the fixed rate, though the gap narrows and occasionally inverts depending on the yield curve. On $400,000 a one-point saving is around $250 a month — real money, and the whole case for taking the risk.

The rate resets to an index plus a fixed margin, then adjusts annually within the caps. Most current ARMs track SOFR. The payment re-amortises over the remaining term, so a reset late in the loan moves the payment more than the rate change alone suggests.

Only if you qualify at the time — which depends on rates, your income, your credit and the home's value, none of them guaranteed to cooperate. Refinancing is a plan that fails precisely when you need it most. Treat it as a hope, not a hedge.