Which is better: fixed or adjustable?
This tool calculates the monthly mortgage payment for a fixed- and adjustable-rate mortgage (ARM) loan, given their respective interest rates and other loan terms.
Payments on an adjustable-rate mortgage are fixed for an initial period and are usually adjusted annually after the initial period. For example, a 3/1 ARM loan would have a fixed rate for the first three years and be readjusted once a year thereafter.
The interest rate on an adjustable-rate mortgage loan is usually reset on the loan's anniversary date. To calculate the new rate, a spread, or margin, is added to a widely used index rate.
Adjustable-rate mortgage loans usually have a periodic and lifetime cap that limit how much the interest rate can change in one period and the maximum interest rate during the lifetime of the loan, respectively.