ARM & Interest Only ARM vs. Fixed Rate Mortgage
Use this calculator to compare a fixed rate mortgage to two types of ARMs, a Fully Amortizing ARM and an Interest Only ARM.
How the arm & interest only arm vs. fixed rate mortgage calculator works
It computes the initial payment three ways on the same loan: a fixed-rate amortizing payment, an amortizing ARM payment at a lower rate, and an interest-only ARM payment that covers just the interest and builds no equity.
Worked example: with loan amount of $350,000, loan term (years) of 30 and fixed rate of 6.75%, the arm & interest-only arm vs fixed rate mortgage shows lowest initial payment of $1,677.08.
- Fixed-rate payment
- $2,270.09
- Amortizing ARM
- $2,042.50
- Interest-only ARM
- $1,677.08
- IO vs fixed gap
- $593.01
The formula
Fixed and ARM payments use P × r ÷ (1 − (1 + r)⁻ⁿ); the interest-only payment is simply balance × monthly rate.
Results are estimates for educational purposes and are not financial advice. Confirm exact figures with your lender, plan administrator or advisor.
Questions about the arm & interest only arm vs. fixed rate mortgage
Which option has the lowest payment?
The interest-only ARM, because you pay only interest and no principal. But it builds no equity and carries both reset and payment-jump risk, so the low payment has real costs.
Do these payments stay the same?
Only the fixed-rate payment is permanent. Both ARM options can reset higher, and the interest-only payment jumps when principal repayment begins.
When would I choose an interest-only ARM?
For maximum short-term cash flow with a clear plan to sell, refinance or pay down principal before the costs catch up. For most buyers it is the riskiest of the three.
Is the ARM & Interest Only ARM vs. Fixed Rate Mortgage free to use?
Yes. Every calculator on FinCalculators is completely free, with no sign-up, login or paywall. You can run as many scenarios as you like.