See what your ARM payment does after the teaser ends.
Enter your adjustable-rate mortgage and read the whole story: the fixed-period payment, the first expected adjustment, the worst-case cap ceiling, and the payment shock year by year.
Your ARM
Caps are written as initial / periodic / lifetime, for example a 2/2/5 structure. The fully-indexed rate is the index plus your margin.
What happens after the teaser
Payment over time
Year-by-year payment schedule
Expected scenario: the rate moves toward the fully-indexed rate, one adjustment at a time, held inside your caps.
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Adjustable-rate mortgages, explained
How an adjustable-rate mortgage actually works
An adjustable-rate mortgage starts with a fixed teaser rate for an initial period, commonly 5, 7, or 10 years, and then the rate resets on a set schedule for the rest of the term. The name tells you the structure: a 5/1 ARM is fixed for 5 years, then adjusts once every 1 year. During the fixed period this calculator amortizes the teaser rate over the full term, so the early payment often looks cheaper than a comparable fixed-rate loan.
When the fixed period ends, the rate is rebuilt from two parts. The index is a public benchmark such as SOFR that rises and falls with the market, and the margin is a fixed spread the lender adds on top. Add them together and you get the fully-indexed rate, which is what the loan really costs once the discount is gone.
Reading the caps: initial, periodic, and lifetime
Caps are the guardrails that keep an ARM from moving too far too fast, and they are written as three numbers such as 2/2/5. The first number is the initial cap, the most the rate can change at the very first adjustment. The second is the periodic cap, the limit on every reset after that. The third is the lifetime cap, the ceiling on how far the rate can ever climb above your starting rate.
The caps matter because the fully-indexed rate can sit well above the teaser. If the index plus margin is higher than the initial rate, the caps decide how many years it takes to climb there, and the lifetime cap sets the highest payment you could ever face. This tool shows both the expected path and that worst-case ceiling side by side.
Payment shock and when an ARM makes sense
Payment shock is the jump between your comfortable fixed-period payment and the first adjusted payment. Because the loan re-amortizes the remaining balance at the new, usually higher rate over the years left, the increase can be steep even inside the caps. Planning for that reset, rather than the teaser, is the whole point of running an ARM before you sign.
An ARM can be a smart tool when you are confident you will sell, refinance, or pay the loan down before the fixed period ends, or when you genuinely expect rates to fall. It is a poor fit when your budget only works at the teaser payment, since a rising index can push you toward the lifetime cap and a payment you did not plan for.
Common questions
What do the numbers in a 5/1 ARM mean?
The first number is how many years the rate stays fixed, and the second is how often it adjusts after that. A 5/1 ARM is fixed for 5 years, then resets once every year for the rest of the term. A 7/6 ARM is fixed for 7 years and then adjusts every 6 months.
What is the fully-indexed rate?
It is the index plus the margin. The index is a public benchmark that moves with the market, and the margin is a fixed spread your lender adds. Once the teaser period ends, your rate is driven toward the fully-indexed rate, held inside your caps.
How high can my ARM payment go?
The lifetime cap sets the ceiling. Your rate can never rise more than the lifetime cap above the initial rate, no matter how far the index climbs. This calculator computes that worst-case payment by driving the rate up the maximum allowed each period until it hits that ceiling.
Is an ARM cheaper than a fixed-rate mortgage?
It usually starts cheaper because the teaser rate is discounted, so early payments are lower. Whether it stays cheaper depends on where the index goes. If rates rise after your fixed period, an ARM can end up costing more than a fixed loan would have.
Estimates for planning only. Your real index at each reset is unknown today, so the expected line assumes the index you enter holds steady. Actual payments depend on the true index value, your exact caps, and your note. All math runs in your browser. Verify every figure with your lender before you sign.