1. What is an ARM Mortgage?

An Adjustable-Rate Mortgage (ARM) is a home loan with an interest rate that can change periodically. This means your monthly payments can increase or decrease over time.

2. How Does the Calculator Work?

The calculator uses the standard ARM payment formula:

Where:

• \( p \) — Principal loan amount ($)
• \( r_{arm} \) — Monthly interest rate (decimal)
• \( n \) — Loan term in months

Explanation: This formula calculates the fixed monthly payment required to repay the loan over its term, based on the current interest rate.

3. Importance of ARM Payment Calculation

Details: Understanding your ARM payment helps with budgeting and financial planning, especially important since rates (and payments) can change over time.

4. Using the Calculator

Tips: Enter principal amount in dollars, monthly interest rate as a decimal (e.g., 0.0033 for 0.33%), and loan term in months. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How is ARM different from fixed-rate mortgage?
A: ARM has variable interest rates that change periodically, while fixed-rate mortgages maintain the same rate for the entire loan term.

Q2: What are typical ARM adjustment periods?
A: Common adjustment periods are 1, 3, 5, 7, or 10 years after an initial fixed period.

Q3: How often do ARM rates change?
A: After the initial fixed period, rates typically adjust annually based on a financial index plus a margin.

Q4: What are rate caps in ARMs?
A: Most ARMs have periodic adjustment caps (limit on rate change per adjustment) and lifetime caps (maximum rate over loan term).

Q5: When is an ARM a good choice?
A: ARMs may be beneficial if you plan to sell or refinance before the rate adjusts, or if initial rates are significantly lower than fixed rates.