Adjustable Rate Mortgage Calculator

Adjustable Rate Mortgage Calculator

• Adjust the interest rate on any date.
• Audit ARM mortgages for accuracy.
• Solve for many unknowns.
• Useful for any adjustable rate loan.

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In general, mortgages fall into two categories: a fixed‑rate mortgage or an adjustable‑rate mortgage (ARM). The term rate refers specifically to the loan’s interest rate.

With a fixed‑rate mortgage, the interest rate remains unchanged throughout the loan’s term. With an adjustable‑rate mortgage—sometimes called a variable‑rate mortgage—the interest rate may change. Approximately 20 to 30 years ago, when interest rates were significantly higher and gradually decreasing, ARMs were more popular. Borrowers expected interest rates to decline after about two years, reducing their total interest costs.

Currently, with higher interest rates, ARMs have regained popularity. Many borrowers look for ways to reduce their regular payments. Some lenders issued loans 15 to 20 years ago that are now nearing maturity. These borrowers may need an audited financial statement.

If you are in either of these situations, the adjustable‑rate mortgage calculator below provides a flexible solution. It can create a payment schedule for almost any adjustable‑rate loan. Continue reading to learn how it works…

All users should complete the more detailed first tutorial to understand the ARM Calculator’s core concepts and default settings.

To create a loan schedule with adjustable interest rates, follow these steps:

1. Set “Schedule Type” to “Loan”.
   • Or click the New button to clear previous entries.
2. Open the rounding settings.
   1. Select “Adjust last interest”.
   2. Choose Settings > Rounding Options.
3. In the header section, configure the following settings:
   1. Select “Normal” for “Calculate Method”.
   2. Select “Monthly” for “Initial Compounding”.
   3. Enter 5.5 for the “Initial Interest Rate”.

4. In row 1 of the cash‑flow input area, create a “Loan” series.
   1. Set the “Date” to June 25.
   2. Set the “Amount” to 250,000.00.
   3. Set the “# Periods” to 1.
      • Note: The calculator clears any frequency setting when you leave the row.

5. Move to row 2 of the cash‑flow input area. Select “Payment” as the “Series” type.

   This example uses a 15‑year mortgage term. It includes 180 monthly payments.

   The nominal annual interest rate changes every five years.

   1. Set the “Date” to July 25.
   2. Set the “Amount” to U (meaning “Unknown”). See Fig. 1.
   3. Set the “# Periods” to 180. This calculates the payment using the initial 5.5 % interest rate.
   4. Press Tab to move to Frequency. Select “Monthly”.
   5. The “End Date” is automatically calculated as June 25, 2038. This corresponds to 180 monthly periods.

• Your calculator should now appear as shown below:

6. Calculate the unknown payment. The result is $2,042.71. See Fig. 2.

7. Make the first interest‑rate adjustment.
   1. In row 2, set the “# Periods” of payments to 60. This covers five years at 5.5 %.
   2. Move to row 3 of the cash‑flow input area.
   3. Select “Rate Change” as the “Series” type.
   4. Set the “Date” to June 25, 2028.
   5. Enter 4.875 as the new nominal annual interest rate. See Fig. 3.
   6. Optional: In the Series Options column, select “Change Compounding”. The compounding setting remains “Daily”.

8. Calculate the new payment.
   1. Select “Payment” for the “Series”.
   2. Set the “Date” to July 25, 2028.
   3. Set the “Amount” to “Unknown”. (Type u.) See Fig. 3.
   4. Set the “# Periods” to 120. This covers the remaining payments after the first five years.

9. Calculate the unknown payment. The result is $1,984.91. The payment amount decreased because the interest rate was reduced. See Fig. 4.

10. Prepare for the next rate change.
    1. In row 4, set the “# Periods” of payments to 60. This represents five years at 4.875 %.
    2. Move to row 5 of the cash‑flow input area.
    3. Select “Rate Change” for the “Series”.
    4. Set the “Date” to June 25, 2033.
    5. Enter 5.75 as the new nominal annual interest rate. See Fig. 5.

11. Select row 6 of the cash‑flow input area.
    1. Select “Payment” for the “Series”.
    2. Set the “Date” to July 25, 2033.
    3. Set the “Amount” to “Unknown”. (Type u.)
    4. Set the “# Periods” to 60. This represents the remaining payments after the second rate change.

12. Calculate the unknown payment. The result is $2,027.40. The payment amount increased because the interest rate was raised. See Fig. 6.

13. To view a detailed schedule that shows how each payment is split between principal and interest, click the Schedule button above the input area.

• Below is the Schedule with one of the interest‑rate changes. See Fig. 7.

Summary: For adjustable‑rate mortgages and loans, calculate the payment amount for all remaining unknown payments. Then set the “# Periods” column to the number of payments at the new interest rate. Move to the next row to define a rate change. Add a payment series with the amount set to “Unknown” and “# Periods” set to the remaining payments. Calculate the unknown payment. Repeat these steps until all rows are defined.

This website includes dozens of financial calculators. However, aside from the Ultimate Financial Calculator, only this adjustable‑rate mortgage calculator allows interest‑rate changes on dates other than scheduled payment dates.