Adjustable Rate Mortgage Calculator

Adjustable Rate Mortgage

arm-calculatorAn adjustable-rate mortgage differs from a fixed-rate mortgage in many ways. Most importantly, with a fixed-rate mortgage, the interest rate stays the same during the life of the loan. With an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly.

Usually there is a ceiling or cap on the maximum interest rate, which can be applied on the loan and can be reset annually. Lenders generally charge lower initial interest rates for ARMs than for fixed-rate mortgages. At first, this makes the ARM easier on your pocketbook than would be a fixed-rate mortgage for the same loan amount. Moreover, your ARM could be less expensive over a long period than a fixed-rate mortgage—for example, if interest rates remain steady or move lower.

ARM Loans – Are They Better Than Fixed Rate Loans

ARM loans certainly look attractive on the face value as they usually display a lower card rate than their fixed rate counterparts. A corollary of the same fact is that ARM mortgages usually allow you to qualify for a higher amount of loan as compared to a fixed rate loan. They are the way to go in the situations, when you anticipate the housing loans to go southwards.

But at the same time, they come with built in uncertainties. You can never be sure about the future. You can not predict that the interest rate will not increase in future as an increase in interest rate for an ARM Mortgage can seriously affect your financial plannings in future.

ARM Calculator

Here we present you an adjustable Rate Mortgage Calculator, which allows you to calculate the monthly payments for an ARM loan. It has been developed while considering the worst case scenario of maximum possible payout. The calculator has the interest rate always go up after the minimum length between steps and it always goes up the maximum step percent until the interest rate reaches the maximum.

Inputs Required to be Entered

Following inputs are required to be entered to run this early payoff calculator.

  1. Sale Price: This is the sale price of the property. Note that it may be different from the loan amount depending upon the down payment etc.
  2. Down Payment: This is the amount, which you pay from your pocket at the time of purchase of the property.
  3. Initial Interest Rate: The interest rate decided at the time of sanction of your ARM loan.
  4. Length of Initial Fixed Rate: Usually the ARM loan has a fixed rate for a certain period initially. It is usually longer than the period defined as “Minimum length between steps”.
  5. Maximum Interest Rate Steps: In ARM Loans, the interest rate is adjusted in steps. This is the maximum percent it can go up, each time it is adjusted.
  6. Minimum Length Between Steps: Whenever the interest rates are adjusted, they hold for a certain period. This is the minimum length of time, for which the interest rate will not be changed after they have been adjusted.
  7. Maximum Interest Rate: This is the important ceiling of the interest rate. Your adjusted rate cannot go beyond this rate.
  8. Length of Loan: The period for which the loan is to be served.
  9. Additional Principal: The additional amount you will pay each month.
  10. Points: This the the percentage of the loan amount, you may have to pay to close this loan. Check ‘Roll into Loan’ if the cost of the loan points is being financed and included in the ‘Loan Amount’.
  11. Other Closing Costs: Enter any other amount you have to pay to close your loan.

Output Results Calculated by ARM Calculator

Following results will be given after calculations.

  1. Initial Payment: The initial payment required to be made.
  2. Maximum Payment: The maximum monthly payments you might have to make.
  3. Average Payment: The average monthly payment you will be making.
  4. Loan Amount: The actual loan amount, which will depend upon the inputs entered by you for ‘Sale Price, ‘Down Payment, ‘Points’ and ‘Other Closing Costs’.
  5. Maximum Total Interest: This is the total amount of interest you will be paying in the entire loan period.
  6. Maximum Total Paid: This is the total amount you will be paying in the entire loan period.
  7. Payoff Time: The total time in which the loan will be paid.

Besides these regular output fields, there are some more additional output field, which become visible after you click the down arrow key. These are explained below.

  1. Number of Payments: The total number of monthly payments you will be making to serve the loan.
  2. Average Annual Cost: The average amount of money you will be paying every year.
  3. Points Amount: The points percentage applied to the amount you borrow gives the dollar amount the loan points will cost.
  4. Maximum Total Property Cost: It is calculated based upon the worst case scenario.
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Lots of approximations and assumptions have been made while developing the calculators.

Please make your own calculations before making any financial decision.