Comparison Tool

Fixed-Rate vs Adjustable-Rate Mortgage Comparison

On a $300,000 loan, a 7% fixed payment is about $1,996, while a 5/1 ARM starting at 6% begins near $1,799 and can rise each year after year five by up to 2%, capped 5% above start (to 11%). If you sell after 7 years, the ARM often costs less in total interest, but its payment could climb toward $2,600 in a rising-rate path. ARMs reward short stays; fixed rates reward long ones and predictability.

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RateFig provides estimates for educational purposes only. Mortgage and loan figures depend on your credit, fees, points, and individual lender terms. This is not financial advice. Confirm every number with a qualified loan officer before making a decision.

How It Works

The fixed loan uses one rate for the whole hold. The ARM holds its start rate for the fixed period, then steps up by the annual cap each year (here 2%) until it hits the lifetime cap (start + 5%). We re-amortize the remaining balance at each new rate month by month. Cumulative interest is summed along the way. This models the contractual worst-case step path; real ARMs (such as 5/1) usually adjust to an index plus margin, which can be lower, but the cap path shows your downside.

What Should You Do?

An ARM makes sense when you will move or refinance before the fixed period ends and rate trends are uncertain — you capture the lower start rate and exit before big adjustments. A fixed rate suits long stays and anyone who loses sleep over payment risk. Always read the ARM's index, margin, adjustment frequency, and caps in the note; the worst-case payment shown here is the number to make sure you could still afford.

Frequently Asked Questions

What does 5/1 ARM mean?

The rate is fixed for 5 years, then adjusts once a year (the 1) based on an index plus a margin, subject to caps.

Why is the ARM start rate lower?

The lender takes less risk early because the rate can rise later, so they price the intro period below the fixed loan.

Could my payment really hit the worst case?

Only if rates rise every year by the cap. It is unlikely but possible; the worst-case figure tells you your ceiling.

Should I take an ARM if I stay long?

Risky. After the fixed period your payment can climb for years. A fixed loan is safer for long holds.

Do extra payments help an ARM?

Yes — lowering the balance before adjustments reduces the dollars affected by each rate change.

How do I compare true cost?

Compare the start payment, the worst-case payment, and total interest over your real planned hold, not just the headline rate.