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LPT Loan Projection Tool Mortgage projection calculators

ARM vs fixed mortgage basics

ARM vs Fixed: What’s the difference?

The core difference is rate behavior. A fixed-rate mortgage keeps the same interest rate for the life of the loan. An adjustable-rate mortgage starts with an initial fixed period, then can reset on a schedule based on the loan’s adjustment rules.

Model an ARM Model a fixed loan
Budgeting estimate only. This tool is not legal, tax, or financial advice. Outputs are rough projections based on user-entered assumptions and should not be treated as a lender payoff quote or guaranteed result.

Fixed-rate mortgage

A fixed-rate mortgage uses one interest rate for the entire loan term. The scheduled principal-and-interest payment generally remains constant unless the loan is refinanced, recast by the lender, modified, or paid off early.

  • Best for modeling a stable payment path.
  • Useful when long-term payment certainty matters most.
  • Extra principal mainly affects payoff timing and interest savings, not the scheduled P&I amount.
Stable rate Predictable P&I No reset schedule

Adjustable-rate mortgage

An ARM has an initial fixed-rate window followed by scheduled adjustment windows. After the first adjustment, the rate can change according to the loan’s reset terms, caps, floor, index, margin, and servicing rules.

  • Best for modeling multiple rate-reset outcomes.
  • Useful when comparing payment shock, rate caps, and recast behavior.
  • Extra principal can reduce the balance before a reset, which may reduce the payment calculated at recast.
Initial fixed period Rate resets Cap exposure

Side-by-side difference

Feature Fixed-rate mortgage Adjustable-rate mortgage
Interest rate Stays the same for the loan term. Starts fixed, then can change at scheduled adjustment dates.
Scheduled P&I Usually stable across the term. May change after adjustments if the loan recasts or the rate changes.
Projection focus Payoff date, total interest, extra-principal impact, and cash-flow timing. Reset dates, rate paths, payment shock, cap limits, and recast exposure.
Risk profile Lower rate-reset risk; the borrower still has tax, escrow, insurance, and payoff-estimate uncertainty. Higher rate-reset risk; payment may rise if the adjusted rate is higher.
Tool to use Fixed Projection Tool ARM Projection Tool
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How this affects the fixed calculator

The Fixed Projection Tool assumes one annual interest rate and applies monthly amortization against the entered current balance. It is designed for scheduled-only and additional-principal comparisons without rate-reset scenarios.

  • Use it when the rate is expected to remain constant.
  • Use it to compare base amortization versus extra principal.
  • Use it when you want a simpler payoff and interest estimate.

How this affects the ARM calculator

The ARM Projection Tool adds reset timing, rate floors, rate ceilings, rate increments, and recast behavior. It compares multiple paths so the same loan can be reviewed under worse, neutral, and better rate assumptions.

  • Use it when the loan has a first adjustment date.
  • Use it to compare payment shock at reset dates.
  • Use it to test whether extra principal before a reset changes recast results.

How ARM names work

ARM labels usually describe timing. In a 5/1 ARM, the rate is typically fixed for the first five years, then adjusts every one year after that. In a 3/3 ARM, the rate is typically fixed for the first three years, then adjusts every three years. The exact reset mechanics depend on the loan documents.

For projection work, the important inputs are the first adjustment date, the adjustment interval, the rate floor, the rate ceiling, the size of assumed rate changes, and whether scheduled P&I is recalculated at each adjustment.

Questions to ask before modeling

  • What is the current principal balance?
  • What is the current rate and scheduled P&I?
  • For an ARM, when is the first reset?
  • What are the rate caps, floor, and adjustment frequency?
  • Will you add monthly or one-time extra principal?

Use the difference for scenario planning, not prediction

A fixed-rate projection is mainly about amortization, payoff timing, and extra-principal impact. An ARM projection is also about reset exposure. Neither output guarantees lender payoff amounts, tax treatment, escrow requirements, or future rate outcomes.