ARM vs Fixed Mortgage Calculator

In a 5/6 ARM the rate is fixed for 5 years, then adjusts every 6 months. Caps written 2/2/5 mean the rate can rise at most 2 percentage points at the first adjustment, 2 more at each later one, and 5 points total above the start rate.

Exactly as high as the lifetime cap allows — that figure is contractual, not a forecast. A 5.75% start rate with a 5-point lifetime cap can reach 10.75%, and because the payment re-amortizes over the shorter remaining term, the payment rises more than the rate change alone suggests.

It is a good trade only if you are confident you will sell or refinance before the intro period ends. If there is a real chance you still hold the loan afterward, you are betting on an index nobody can predict, and the fixed loan is the safer choice.

A fixed number the lender adds to the index at every adjustment — index plus margin equals your fully-indexed rate. Unlike the index, the margin never changes, and it is negotiable at application. A lower margin permanently lowers every future adjustment.

Yes. If the index falls, the fully-indexed rate can drop below your intro rate, subject to the same caps and any rate floor written into the note. Check for a floor — many ARMs have one, and it limits how much benefit a falling index can deliver.