Allen Markel, REALTOR® · Texas Premier Realty

Buying

5/1 and 7/1 ARM

Year-by-year payments after the fixed period, the worst case at the cap, and the 30-year fixed beside it.

ARMs usually start about 0.5 under the 30-year fixed (7.4%).

What you expect rates to do. +1.00 is the cautious default; negative means falling rates.

5/1 ARM vs. the 30-year fixed

$2,305 /mo for 5 years

30-year fixed at 7.4% (P&I)
$2,423/mo
ARM edge during the fixed years
$118/mo
Worst case — capped at 11.90% (year 10)
$3,387/mo
Paid over 5 years: ARM · fixed
$138,306 · $145,400
Paid over 7 years: ARM · fixed
$201,333 · $203,560
Paid over 10 years: ARM · fixed
$315,419 · $290,800

For the first 5 years the rate cannot move — the note fixes it. After that it adjusts once a year, moving up or down by up to 1% from the previous year’s rate, not from the start. The cap notation 5/1/5 means “fixed 5 years, annual adjustment, 5% lifetime ceiling above the start rate.” At every change the payment is re-amortized: recomputed on what you still owe over the months left. The totals above follow your “change per year” guess; the worst case assumes the maximum rise every year, clamped to the 11.90% ceiling.

We’re not a lender. Real ARMs price off an index (SOFR) plus a margin, with a first-adjustment cap that can differ from later ones and a floor set by the note; the caps here are the common sets, not a quote. An ARM makes sense when you will sell or refinance inside the fixed period — plan for the worst-case payment anyway.

Year by year for the first 10 years on a $350,000 5/1 ARM starting at 6.9%. Years 1–5 are fixed by the note. From year 6 each row shows the lowest and highest the rate can be that year (moving 1% a year, 5% lifetime cap each way). Payment is principal & interest; balance follows the high path.
YearRatelowest – highestPayment / molowest – highestBalance at year endhigh path
1 (fixed)6.90%$2,305$346,376
2 (fixed)6.90%$2,305$342,493
3 (fixed)6.90%$2,305$338,334
4 (fixed)6.90%$2,305$333,879
5 (fixed)6.90%$2,305$329,106
65.90% – 7.90%$2,100 – $2,518$324,729
74.90% – 8.90%$1,910 – $2,734$320,660
83.90% – 9.90%$1,735 – $2,951$316,822
92.90% – 10.90%$1,576 – $3,169$313,147
101.90% – 11.90%$1,431 – $3,387$309,576

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These are the lenders Allen works with. For any lender you’d like to talk to, tap Make introduction — we’ll make the introduction for you.

Allen Markel is a licensed Texas REALTOR®, not a mortgage lender or loan originator. He does not quote rates or terms and does not decide whether you qualify — only a lender can do that. Introductions are a courtesy; you choose who to work with.

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Questions about Arm

What it does

  • What does the ARM calculator show?

    It shows the monthly payment during the fixed period and then year-by-year payments after it, plus the worst case if the rate rises to the cap. It lays this beside a 30-year fixed loan, so you can see the early savings and the risk you take on later. It also totals what you would pay over several time frames.

  • What do 5/1 and 7/1 mean on an adjustable loan?

    The first number is how many years the rate is fixed, and the 1 means it adjusts once a year after that. So a 5/1 is fixed for five years and a 7/1 for seven. During the fixed period the rate cannot move. After that the rate can rise or fall each year within the caps the loan sets.

The inputs

  • What is the start rate in the ARM calculator?

    It is the rate the loan begins with during the fixed period. The page notes ARMs usually start about half a point under the 30-year fixed rate, and uses that as a starting point. Edit it to match a lender's actual quote, because the early savings you see depend heavily on this number.

  • What does the change per year setting mean?

    It is your guess at how rates move each year after the fixed period. The default is cautious and assumes a rise, and a negative number means falling rates. It drives the totals the calculator shows. It is a what-if you control, not a forecast, so try a few settings to see how much the outcome swings.

  • What are rate caps and which should I pick?

    Caps limit how far the rate can move each year and over the life of the loan. The calculator offers common sets, 1/1/5 and 2/2/5, or custom caps. Real loans are set by the note, and a first adjustment cap can differ from later ones. Check your actual loan terms with a lender before you rely on a set.

Reading the result

  • What is the worst case payment on the ARM page?

    It assumes the rate rises by the maximum every year until it reaches the lifetime cap, then shows the payment at that rate. It is not a prediction. It is a way to see the highest payment the loan allows, so you can decide whether you could carry it. The page advises planning for it even if you expect to sell or refinance first.

  • Why can the ARM cost more over ten years than the fixed loan?

    The savings come in the fixed years, but after that the rate can climb. The page's comparison shows the ARM ahead over a shorter span and behind over a longer one when rates rise. How long you keep the loan matters most, which is why the totals are shown over several time frames.

  • Does the payment change in a simple way when the rate adjusts?

    At every adjustment the payment is recomputed on what you still owe over the months left. The rate moves up or down from the previous year's rate, not from the start rate. That is why the year-by-year table shows a range for each year after the fixed period, with the balance following the high path.

Limits

  • Is the ARM calculator a loan quote?

    No. The page says real ARMs price off an index plus a margin, with a first-adjustment cap that can differ from later ones and a floor set by the note. The caps in the calculator are common sets, not a quote. A lender can show you the exact terms for any ARM you are considering.

Next steps

  • When does an ARM make sense?

    The page says an ARM tends to make sense when you expect to sell or refinance inside the fixed period, and it still advises planning for the worst-case payment. Whether that fits depends on your timeline and comfort with risk. Talk to us about your plans, and we can compare it with a fixed loan for your circumstances.

  • How should I compare the ARM with a fixed loan before choosing?

    Look at the early monthly savings, the totals over the number of years you expect to keep the loan, and the worst case at the cap. Then ask a lender for a written quote on both. A calculator shows the shape of the tradeoff, but the real terms decide it, so get both options in writing.

Using the tool

  • What is the cap on an adjustable-rate loan?

    A cap limits how far the rate can rise at each adjustment and over the life of the loan. The calculator shows the worst case at the cap beside a 30-year fixed so you can see the risk. Your loan's caps are in the loan documents, so ask a loan originator what they are for your loan.

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