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Mortgage loans fall under two main category types: adjustable-rate mortgages (ARM) and fixed-rate mortgages. ARMs provide attractive interest rates set during the initial period of the loan but fluctuate according to market conditions upon expiration of the initial period. This means your monthly payments may go up or down depending on when it’s time for the interest rate to reset, usually annually or semi-annually.

Fixed-rate mortgages do not offer lower interest rates over an initial period, but they do provide you with predictability and stability when it comes to your monthly mortgage payments. Plus, fixed loans are currently set at competitively low-interest rates, making them an attractive option for home buyers. 

Both mortgage types come with their advantages and disadvantages, which is why a calculator that compares these loan types can help you be a more savvy and prepared home buyer. 

How is the ARM vs. Fixed-Rate Mortgage Calculator Helpful?

Using an ARM vs. Fixed-Rate Mortgage Calculator can be used to compare your monthly mortgage payments for each type of loan. By inputting the variables under each loan type, you will be able to see how these payments compare under a fully amortizing schedule, which shows the outstanding principal and interest owed on your loan. 

Having the ability to evaluate exactly how much you stand to gain or lose based on your loan type is crucial to your loan type decision-making process. Overall, an ARM vs. Fixed-Rate Mortgage Calculator can help you determine those figures and decide which loan type is right for you.

What Elements Are Needed to Compare an ARM vs. Fixed-Rate Loan?

Inputs for an ARM vs. Fixed-Rate Calculator will have overlapping variables. The most significant difference will appear when it comes to inputting the interest rate. To the best of your ability, you will need to be prepared to input information for the elements listed below: 

  • Mortgage Amount. This is the original or expected mortgage loan amount that is measured by the principal on the loan.
  • Term in Years. This is the length of the life agreed upon to repay your loan. Mortgage terms are usually set in increments of 15 or 30-year terms. 15-year mortgage terms require more aggressive payments which can allow you to save thousands that would otherwise be repaid over a 30-year period. On the other hand, 30-year mortgage terms give you the option of lower monthly payments which may be a more practical option for some homeowners.
  • Interest Rate on a Fixed-Rate Loan. On a fixed-rate loan, the rate remains constant over the life of the loan. It typically falls within a range of 2-4.5% and is influenced by your personal financial statements. Borrowers who are assessed as a lower risk should expect to pay lower interest rates, while borrowers who are seen as a higher risk to their lender usually pay higher interest rates to offset that risk. 
  • Initial Interest Rate on an ARM. The initial period offers you lower interest rates locked in for a set period of time. Typically, an ARM will have a lower interest rate compared to a fixed-rate mortgage. This amount will vary from lender to lender. 
  • Initial Interest Rate Period on an ARM. This is the length of the agreed-upon initial interest period. An example of an initial interest rate on an ARM can be expressed as 5/1, which means the initial interest rate is locked in for 5 years before it resets based on market conditions. 7, 10, and other initial interest rate period options are available to you depending on the agreement reached between you and your lender.
  • Expected ARM Adjustment. The interest rate on an ARM usually resets annually or semi-annually. It is determined in alignment with fluctuations in the market.
  • ARM Interest Rate Cap. This is the maximum interest rate set on your mortgage. Setting an interest rate cap provides homebuyers with protection from dramatic rate increases and also provides a ceiling for maximum interest rate costs.

How Do I Choose Which Loan Type is Right for Me?

Fixed-rate mortgages offer predictability on your monthly payments at a constant rate throughout the term. Interest rates on fixed-rate loans are set at competitively low rates currently. ARM mortgages offer attractive interest rates during the initial period but may increase your monthly payments in alignment with market fluctuations after the initial period ends. Keep in mind with an ARM, there are a variety of terms available, such as 3/1, 5/1, 7/1, 10/1, and other ARMs available according to your negotiated terms. With both loan options, there is always the option to refinance down the road into a better rate or term. 

 How Can The Home Loan Expert Help?

The Home Loan Expert team is built on a foundation of years of mortgage lending expertise. Our friendly lending experts are well-equipped to serve you as we come from the same neighboring communities that you live in, making us aware of what’s really going on in your neighborhood. Our success in providing our lending services nationwide comes from our dedication to get you the best deal possible on your loan so that you can put yourself in the best financial position possible with your loan. We process loan applications quickly and efficiently, with closing times in as little as two weeks!

We are fortunate to live in an age with tools like online calculators to help us estimate our monthly payments. Speaking with one of our lending experts can help give you a clearer idea of these costs. We can also help answer any questions you may have about how financial records will affect your loan application or any other inputs that don’t necessarily “fit inside the box.” So give us a call today at 800-991-6494 to find out more about if a fixed-interest mortgage or an ARM is the best loan option for you.


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