5 Year Arm Calculator

5-Year ARM Payment Calculator

function calculateARM() { var initialPrincipal = parseFloat(document.getElementById('initialPrincipal').value); var startingAnnualPercentage = parseFloat(document.getElementById('startingAnnualPercentage').value); var totalLoanDuration = parseFloat(document.getElementById('totalLoanDuration').value); var adjustmentInterval = parseFloat(document.getElementById('adjustmentInterval').value); var marketIndexValue = parseFloat(document.getElementById('marketIndexValue').value); var lendersFixedAddon = parseFloat(document.getElementById('lendersFixedAddon').value); var maxChangePerAdjustment = parseFloat(document.getElementById('maxChangePerAdjustment').value); var overallMaxPercentage = parseFloat(document.getElementById('overallMaxPercentage').value); var overallMinPercentage = parseFloat(document.getElementById('overallMinPercentage').value); var resultDiv = document.getElementById('result'); resultDiv.innerHTML = "; // Clear previous results // Input validation if (isNaN(initialPrincipal) || initialPrincipal <= 0) { resultDiv.innerHTML = 'Please enter a valid Initial Loan Principal.'; return; } if (isNaN(startingAnnualPercentage) || startingAnnualPercentage < 0) { resultDiv.innerHTML = 'Please enter a valid Starting Annual Percentage.'; return; } if (isNaN(totalLoanDuration) || totalLoanDuration <= 0) { resultDiv.innerHTML = 'Please enter a valid Total Loan Duration.'; return; } if (isNaN(adjustmentInterval) || adjustmentInterval <= 0) { resultDiv.innerHTML = 'Please enter a valid Adjustment Interval.'; return; } if (isNaN(marketIndexValue) || marketIndexValue < 0) { resultDiv.innerHTML = 'Please enter a valid Current Market Index Value.'; return; } if (isNaN(lendersFixedAddon) || lendersFixedAddon < 0) { resultDiv.innerHTML = 'Please enter a valid Lender\'s Fixed Add-on.'; return; } if (isNaN(maxChangePerAdjustment) || maxChangePerAdjustment < 0) { resultDiv.innerHTML = 'Please enter a valid Max Change Per Adjustment.'; return; } if (isNaN(overallMaxPercentage) || overallMaxPercentage < 0) { resultDiv.innerHTML = 'Please enter a valid Overall Max Percentage.'; return; } if (isNaN(overallMinPercentage) || overallMinPercentage < 0) { resultDiv.innerHTML = 'Please enter a valid Overall Min Percentage.'; return; } var initialFixedPeriodYears = 5; // Hardcoded for a 5-year ARM if (totalLoanDuration <= initialFixedPeriodYears) { resultDiv.innerHTML = 'Total Loan Duration must be greater than the initial fixed period of ' + initialFixedPeriodYears + ' years.'; return; } // — Calculation for Initial Fixed Period (Years 1-5) — var monthlyStartingRate = (startingAnnualPercentage / 100) / 12; var totalPayments = totalLoanDuration * 12; var fixedPeriodMonthlyPayment; if (monthlyStartingRate === 0) { fixedPeriodMonthlyPayment = initialPrincipal / totalPayments; } else { fixedPeriodMonthlyPayment = initialPrincipal * (monthlyStartingRate * Math.pow(1 + monthlyStartingRate, totalPayments)) / (Math.pow(1 + monthlyStartingRate, totalPayments) – 1); } // — Remaining Balance after Initial Fixed Period (5 years / 60 payments) — var paymentsMadeInFixedPeriod = initialFixedPeriodYears * 12; var remainingBalanceAfterFixedPeriod; if (monthlyStartingRate === 0) { remainingBalanceAfterFixedPeriod = initialPrincipal – (fixedPeriodMonthlyPayment * paymentsMadeInFixedPeriod); } else { remainingBalanceAfterFixedPeriod = initialPrincipal * (Math.pow(1 + monthlyStartingRate, totalPayments) – Math.pow(1 + monthlyStartingRate, paymentsMadeInFixedPeriod)) / (Math.pow(1 + monthlyStartingRate, totalPayments) – 1); } // — Projected Rate for First Adjustment (Year 6) — var projectedIndexRate = marketIndexValue + lendersFixedAddon; // Apply adjustment cap relative to the starting rate var maxRateFirstAdjustment = startingAnnualPercentage + maxChangePerAdjustment; var minRateFirstAdjustment = startingAnnualPercentage – maxChangePerAdjustment; var adjustedRateYear6 = Math.min(projectedIndexRate, maxRateFirstAdjustment); adjustedRateYear6 = Math.max(adjustedRateYear6, minRateFirstAdjustment); // Apply overall caps adjustedRateYear6 = Math.min(adjustedRateYear6, overallMaxPercentage); adjustedRateYear6 = Math.max(adjustedRateYear6, overallMinPercentage); // — Projected Payment for First Adjustment (Year 6) — var remainingPaymentsAfterFixedPeriod = (totalLoanDuration – initialFixedPeriodYears) * 12; var monthlyAdjustedRateYear6 = (adjustedRateYear6 / 100) / 12; var paymentYear6; if (monthlyAdjustedRateYear6 === 0) { paymentYear6 = remainingBalanceAfterFixedPeriod / remainingPaymentsAfterFixedPeriod; } else { paymentYear6 = remainingBalanceAfterFixedPeriod * (monthlyAdjustedRateYear6 * Math.pow(1 + monthlyAdjustedRateYear6, remainingPaymentsAfterFixedPeriod)) / (Math.pow(1 + monthlyAdjustedRateYear6, remainingPaymentsAfterFixedPeriod) – 1); } // — Projected Payment at Overall Maximum Percentage (Worst Case) — var monthlyOverallMaxRate = (overallMaxPercentage / 100) / 12; var paymentOverallMax; if (monthlyOverallMaxRate === 0) { paymentOverallMax = remainingBalanceAfterFixedPeriod / remainingPaymentsAfterFixedPeriod; } else { paymentOverallMax = remainingBalanceAfterFixedPeriod * (monthlyOverallMaxRate * Math.pow(1 + monthlyOverallMaxRate, remainingPaymentsAfterFixedPeriod)) / (Math.pow(1 + monthlyOverallMaxRate, remainingPaymentsAfterFixedPeriod) – 1); } // Display results resultDiv.innerHTML += '

Payment Projections:

'; resultDiv.innerHTML += 'Initial Fixed Period (Years 1-5) Monthly Payment: $' + fixedPeriodMonthlyPayment.toFixed(2) + "; resultDiv.innerHTML += 'Remaining Principal After 5 Years: $' + remainingBalanceAfterFixedPeriod.toFixed(2) + "; resultDiv.innerHTML += 'Projected Rate for Year 6: ' + adjustedRateYear6.toFixed(2) + '%'; resultDiv.innerHTML += 'Projected Monthly Payment for Year 6: $' + paymentYear6.toFixed(2) + "; resultDiv.innerHTML += 'Worst-Case Monthly Payment (at Overall Max Percentage ' + overallMaxPercentage.toFixed(2) + '%): $' + paymentOverallMax.toFixed(2) + "; } .calculator-container { font-family: Arial, sans-serif; max-width: 600px; margin: 20px auto; padding: 20px; border: 1px solid #ccc; border-radius: 8px; background-color: #f9f9f9; } .calculator-container h2 { text-align: center; color: #333; margin-bottom: 20px; } .calculator-inputs label { display: block; margin-bottom: 5px; font-weight: bold; color: #555; } .calculator-inputs input[type="number"] { width: calc(100% – 22px); padding: 10px; margin-bottom: 15px; border: 1px solid #ddd; border-radius: 4px; box-sizing: border-box; } .calculator-inputs button { width: 100%; padding: 12px; background-color: #007bff; color: white; border: none; border-radius: 4px; font-size: 16px; cursor: pointer; transition: background-color 0.3s ease; } .calculator-inputs button:hover { background-color: #0056b3; } .calculator-results { margin-top: 20px; padding: 15px; border: 1px solid #e0e0e0; border-radius: 4px; background-color: #e9f7ef; color: #333; } .calculator-results h3 { color: #28a745; margin-top: 0; } .calculator-results p { margin-bottom: 8px; line-height: 1.5; } .calculator-results p strong { color: #000; }

Understanding the 5-Year Adjustable-Rate Mortgage (ARM)

A 5-Year Adjustable-Rate Mortgage (ARM) is a type of home loan where the annual percentage is fixed for an initial period of five years. After this initial fixed period, the annual percentage adjusts periodically, typically once a year, based on a pre-selected market index plus a lender's fixed add-on (margin).

How a 5-Year ARM Works

The "5" in 5-Year ARM refers to the number of years your initial annual percentage remains fixed. During these first five years, your monthly principal and payment will not change. This provides predictability in your budget for a significant period.

Once the fixed period ends, your annual percentage will begin to adjust. The new percentage is determined by adding a fixed "lender's fixed add-on" set by your lender to a chosen financial "market index value" (like the SOFR or CMT rate). For example, if the market index value is 4% and your lender's fixed add-on is 2.5%, your new percentage would be 6.5%.

Rate Caps: Protecting Borrowers

ARMs come with various caps to protect borrowers from extreme percentage fluctuations:

  • Max Change Per Adjustment: Limits how much the annual percentage can change at the first adjustment after the fixed period, and typically at each subsequent adjustment. For a 5-year ARM, this applies at the start of year 6 and onwards.
  • Overall Max Percentage: Sets an absolute ceiling on how high your annual percentage can ever go over the life of the loan, regardless of how high the market index value climbs.
  • Overall Min Percentage: Sets an absolute minimum on how low your annual percentage can ever go.

When is a 5-Year ARM a Good Option?

A 5-Year ARM can be attractive for borrowers who:

  • Plan to sell or refinance their home before the fixed-rate period ends (within 5 years).
  • Anticipate their income will increase significantly in the future, making higher payments more manageable.
  • Believe market percentages will fall or remain stable after the fixed period.
  • Want a lower initial monthly payment compared to a traditional fixed-rate mortgage, freeing up cash for other investments or expenses.

Considerations and Risks

The primary risk of an ARM is that your monthly payments could increase significantly if market percentages rise after the fixed period. Even with caps, your payment could become unaffordable if your financial situation doesn't improve or if percentages climb rapidly. It's crucial to understand the potential worst-case scenario (payment at the overall max percentage) before committing to an ARM.

Using the 5-Year ARM Payment Calculator

Our calculator helps you estimate your monthly payments for a 5-Year ARM. Input your initial loan principal, the starting annual percentage, and the total loan duration. Then, provide details about the adjustable phase, including the adjustment interval, current market index value, lender's fixed add-on, and the various percentage caps. The calculator will provide:

  • Your fixed monthly payment for the first five years.
  • The remaining principal balance after the fixed period.
  • A projected monthly payment for the first adjustment period (Year 6), based on your specified market index and caps.
  • A worst-case scenario payment, showing what your monthly payment would be if the annual percentage reached its overall maximum percentage.

This tool is designed to give you a clearer picture of the potential payment fluctuations associated with a 5-Year ARM, helping you make an informed decision about your mortgage.

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