Fixed Rate Mortgage vs. LIBOR ARM

Fixed Rate Mortgage vs. LIBOR ARM Calculator

Adjustable Rate Mortgages (ARM) are characterized with variable rate of interest and monthly payments. This variable rate can be linked with the London InterBank Offered Rate (LIBOR). So, the rate of ARM will fluctuate in line with the prevailing LIBOR in the market. This calculator is determined to find out the monthly payment on LIBOR ARM so that you can compare this mortgage with the monthly payment of fixed rate mortgage.
Fixed Rate Mortgage
Mortgage with an unchanging monthly payment and interest rate over the complete amortization schedule. Fixed rate mortgages are normally offered with term lengths of 15 to 30 years.
Fully Amortizing LIBOR ARM
This type of ARM has fixed amount of interest and monthly payments for a certain predefined period. After that period this fixed rate is turned into a variable rate based on LIBOR. Using LIBOR as the base rate, the ARM is adjusted annually. Following table shows the common terms for ARM:

Common Adjustable Rate Mortgages
Type of ARMAttribute
10/1 ARMFixed for 120 months, and then adjusts annually.
7/1 ARMFixed for 84 months, and then adjusts annually.
5/1 ARMFixed for 60 months, and then adjusts annually.
3/1 ARMFixed for 36 months, and then adjusts annually.
LIBOR Interest Only ARM
This LIBOR based ARM requires you to pay the monthly interests only. As the principal amounts are not paid initially, a balloon payment is needed to repay the outstanding balance completely. Interest only ARMs are also partially fixed in narrower sense because payments are fixed for sometimes.
Mortgage amount
Anticipated or appraised value of the mortgage.
Term in years
The term length (in year) within which you must complete repayments.
Expected rate change
The percentage rate by which you expect the current interest rate to fluctuate annually. Using this calculator you can adjust up to 3% positive or negative change.
Interest rate
Rate of interest charged annually on this type of mortgage.
Months rate fixed
The total number of years over which the mortgage rate will remain fixed. After these years, the rate will fluctuate with the LIBOR’s oscillation.
Interest rate cap
Maximum rate of interest that can be charged on the loan.
Monthly payment
Total amount of interest and principal payments throughout the whole repayment schedule in case of fixed rate mortgage. For interest only ARM, the monthly payment is the amount you pay as interest only payment.