How this calculator works
An adjustable-rate mortgage fixes its rate for an initial period, then adjusts on a schedule, most often once a year. A 10/1 ARM is fixed for ten years and then may change every year until the loan matures, always within any caps and floors in the contract. This calculator applies the rate you expect at the first adjustment, then steps it by your assumed annual change, holding each rate for a full year and recalculating the payment on the remaining balance over the remaining term. It is a projection, not a forecast: the actual rate depends on the index and margin in your agreement, and the cap shapes only the upper bound.
Formula
Initial payment A0 = P × i0 / (1 - (1 + i0)^(-n)) with i0 = initial rate / 12 and n = amortization in years × 12. At each annual adjustment, the rate is min(cap, max(floor, expected rate + change × adjustment number)). The new payment is recalculated on the current balance over the remaining months: A = B × i / (1 - (1 + i)^(-n)). Total interest is the sum of monthly interest charges.
Worked example
A $400,000 mortgage over 30 years at 5% for the first 10 years has a payment of $2,147.29 and a balance of $325,368.26 when the fixed period ends. If the rate then rises to 6.5% and by another half point each year, the first adjusted payment is $2,425.86, and the highest annual payment reaches $2,868.48 once the rate is held at its 9% cap. Total interest over the projection is $530,460.75.
Advertisement
Frequently asked questions
What does 10/1 mean?
The first number is the number of years at the initial fixed rate and the second is the interval in years between later adjustments. A 10/1 ARM therefore fixes for ten years and can adjust once a year afterwards.
How are the caps applied?
Most contracts have a periodic cap limiting a single adjustment, a lifetime cap limiting the total increase, and sometimes an initial adjustment cap. This calculator simplifies to a single lifetime cap and floor; check your agreement for the actual limits.
Why does the payment rise without a new loan?
When the rate resets, the remaining balance is re-amortised over the remaining term at the new rate. Even a small rate increase then raises the payment for the rest of the loan.
Is an adjustable rate riskier?
The opening payment is usually lower than a comparable fixed-rate loan, but the payment can rise later. The cap limits how far it can go; the floor limits how far it can fall.