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HomePaymentHQ

ARM vs Fixed: Which costs less?

Compare the true cost of an adjustable-rate mortgage against a 30-year fixed over your real time horizon. See the crossover point and a clear recommendation.

Loan basics

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Loan amount: $360,000

Fixed rate option

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ARM option

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Auto-set to fixed rate + 0.5%. Override if you have a reason to expect different.
ARM savings
$22,743
Over a 7-year horizon vs the fixed-rate loan.
Fixed monthly P&I
$2,335
ARM intro P&I
$2,124
ARM adjusted P&I (estimate)
$2,399
Crossover point
~30 years
Recommendation
ARM saves you $22,743 if you actually move within 7 years. But if you stay past ~30 years, it costs you more than fixed.

Side-by-side over 7 years

FixedARMDifference
Total paid$196,136$178,398−$17,738
Total interest$162,971$140,228−$22,743
Remaining balance at sale$326,835$321,830−$5,005
Total cost (paid + payoff)$522,971$500,228−$22,743

How the comparison works

The fixed-rate loan amortizes at a single APR for the full term. The ARM starts at the intro rate for the intro period (5, 7, or 10 years), then re-amortizes the remaining balance over the remaining term at your expected adjusted rate.

"Total cost" includes everything you've paid plus the remaining loan balance at the end of your time horizon — what you'd need to pay off if you sold the home on that date. That apples-to-apples view is what reveals the true winner.

For more on choosing between term lengths, see our 15 vs 30 year mortgage comparison, or jump to the main mortgage calculator.

Frequently asked questions

What is an ARM and how does it work?

An adjustable-rate mortgage (ARM) starts with a fixed interest rate for an introductory period — commonly 5, 7, or 10 years — then adjusts periodically based on a benchmark index (like SOFR) plus a margin set by the lender. A 7/1 ARM, for example, is fixed for 7 years and then resets every 1 year. Most ARMs have caps that limit how much the rate can rise per adjustment and over the life of the loan.

When does an ARM make sense?

An ARM is most attractive when (1) the intro rate is meaningfully lower than the fixed-rate alternative, (2) you're highly confident you'll sell or refinance before the intro period ends, and (3) you can financially absorb a higher payment if your timeline slips. Common scenarios: military relocations, planned trade-up buyers, or someone planning to pay the loan off rapidly.

What are the risks of an ARM?

The big risk is rate-shock at adjustment. If rates rise or if you can't sell/refinance in time, your payment can jump significantly. ARMs also tend to be harder to budget around, and the initial savings can disappear quickly if rates climb. Always model a worst-case adjusted-rate scenario before signing.

How is the 'crossover point' calculated?

The crossover is the time horizon at which the cumulative cost of the ARM equals the fixed-rate loan. Before the crossover, the ARM is cheaper; after, the fixed wins. We compute it by simulating both loans year by year and finding when the ARM's cumulative payments plus remaining balance overtake the fixed loan's.

Does this calculator account for rate caps?

It uses a single 'expected adjusted rate' you provide — typically your worst-case or your best estimate of where rates will land. To stress-test, set the adjusted rate at your loan's lifetime cap (often the start rate + 5 or 6 percentage points) and re-run the comparison.