ARM Reset & Payment Shock Calculator

How the ARM reset is calculated

An adjustable-rate mortgage starts with the original payment, then recalculates the payment when the fixed period ends. This calculator first finds the scheduled principal-and-interest payment at the introductory rate, pays the loan down through the fixed period, and uses that balance for the first reset.

The fixed-payment formula is payment = P × i ÷ (1 − (1 + i)^−n), where P is the balance, i is the annual rate divided by 12, and n is the remaining number of monthly payments. If the rate is zero, the payment is P ÷ n.

At a reset, the expected target rate is the assumed index plus the margin. The rate is then limited by the first-adjustment cap or subsequent-adjustment cap, the lifetime ceiling, and the floor. Written compactly, the expected reset rate is min(H, max(f, prior − cap, min(index + margin, prior + cap))). The worst-case path uses the same reset dates but raises the rate by the maximum permitted cap at each reset until it reaches the lifetime ceiling.

What moves the result most

The size of the first payment shock usually comes from three inputs: the balance still outstanding at the reset, the fully indexed rate, and the first-adjustment cap. A longer fixed period gives the borrower more time to pay principal down, but a high margin or high index can still push the reset rate to the cap. The subsequent cap and adjustment frequency determine how quickly later payments can climb toward the lifetime maximum.

The table is intentionally reset-by-reset. It shows the opening balance at each reset, the expected and worst-case rates, the new payment, the payment change, and the constraint that set the rate. This is often more useful than a single maximum payment because a 5/6 ARM can move every six months after the fixed period, while a 5/1 ARM moves only once a year.

What this calculator leaves out

The result is an estimate from the terms you enter. Actual ARM notes may use lookback dates, index rounding rules, carryover provisions, separate upward and downward caps, payment caps, or conversion options. The calculator also assumes a fully amortizing loan with payment recalculation at every reset; it does not model interest-only periods, negative amortization, option payments, taxes, insurance, mortgage insurance, association dues, or servicing fees.

Worked example

For a $400,000 ARM at an initial 5.5% rate over 30 years with a 5-year fixed period, the initial principal-and-interest payment is $2,271.16. After 60 scheduled payments, the balance is about $369,842.41.

If the assumed index is 4.25% and the margin is 2.75 percentage points, the fully indexed rate is 7.00%. With a 2-point first cap, a 1-point subsequent cap, a 5-point lifetime cap, and a 2.75% floor, the expected first reset rate is 7.00% and the new payment is $2,613.97. That is a 15.09% first-reset payment shock. In the fastest allowed increase path, the rate reaches the 10.50% lifetime maximum at month 78 and the highest recalculated payment is about $3,473.60.