ARM Formula Explained
The math behind the ARM Calculator: the equation, the variables, and the assumptions it makes.
By Onias Derilus, Mortgage Capital · NMLS# 1859012 · Last Updated: June 2026
It estimates payments on an adjustable-rate mortgage across the fixed introductory period and the adjustment periods that follow, including worst-case rate caps.
The Formula
Adjusted rate = index + margin, bounded by periodic and lifetime caps
An ARM like a 5/1 is fixed for the first five years, then adjusts annually. The new rate equals an index plus a fixed margin, but periodic and lifetime caps limit how far it can jump at each adjustment and over the life of the loan.
The calculator's worst-case projection applies those caps to show the highest possible payment. Comparing it to the intro payment reveals your exposure if rates rise after the fixed period ends.
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Rates are illustrative only. APR and payments vary by credit score, loan amount, and market conditions. Subject to credit approval. Not a commitment to lend. NMLS# 1859012. Equal Housing Lender.