Question:

How does the adjustable (ARM) home loan payment and rate change compared to a fixed rate mortgage loan?

Answer:

Use an Adjustable Rate Mortgage (ARM) calculator to know your home loan payment rate or to compare them to a fixed rate mortgage loan. ARMs will have different features that have to be taken into account when calculating the monthly payment.

Consider the following example:

Mortgage amount is $100,000 Fixed rate mortgage (FRM) Option ARM ARM, no deferred interest, no interest-only allowed
Initial interest rate 6.25% 1.75% (assumed rate increase of 0.25% annually) 5% (assumed rate increase of 0.25% annually)
Mortgage term 30 years
Fully indexed rate (FIR) 6.25% 6.25% 6.25%
Interest rate cap 6.25% No rate cap 12.000%
Starting rate fixed for 360 months 4 months 12 months
Maximum annual mortgage payment increase N/A 7.5% N/A
Monthly payment (principal and interest) $616 $357 at the end of the first year $537 at the end of the first year
$616 $477 at the end of the 5th year $596 at the end of the 5th year
Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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