Model adjustable rate mortgage scenarios with initial fixed period, rate caps, index margins, and worst-case payment projections.
This calculator amortizes an adjustable-rate mortgage in two stages: a standard fixed payment for the initial period (e.g. the first 5 years of a 5/1 ARM), then a re-amortization of the remaining balance at a new rate equal to index plus margin, bounded by the initial, periodic, and lifetime caps you enter. The detail people most often miss is that the new payment is recalculated over the remaining term, not the original 30 years, and that a high fully-indexed rate can still be pulled down by the periodic cap even when the index itself has jumped several points.
A concrete input and expected output from the current implementation.
Input
Loan amount $200,000, 30-year term, 5/1 ARM, initial rate 6.00% fixed for 60 months, margin 2.75%, assumed index at first adjustment 4.00%, caps 2/2/5 (2% initial adjustment cap, 2% periodic cap, 5% lifetime cap)
Expected output
Initial payment (months 1-60): $1,199.10/month. Balance at month 60: $186,109. First adjustment (month 61): rate resets to 6.75% (fully-indexed, under the 8.00% initial-cap ceiling); new payment: about $1,285.85/month. Lifetime-cap ceiling: rate cannot exceed 11.00% over the life of the loan.
The initial payment is standard 360-month amortization at 6% on $200,000; the 6.75% fully-indexed rate (4.00% index + 2.75% margin) is below the 8% initial-cap ceiling so it applies unreduced, and the new payment re-amortizes the $186,109 balance over the remaining 300 months at 6.75%. The 11.00% figure is simply the 6% start rate plus the 5-point lifetime cap.
The tool first computes a level payment on the full loan amount and term at the initial fixed rate for the number of months you specify (60 for a 5/1 ARM). At the adjustment month it takes the balance remaining at that point and re-amortizes it as a fresh loan, using the number of months left in the original term and the new capped rate, rather than restarting the term.
The index-plus-margin figure is compared against three ceilings in order: the initial adjustment cap (limits the first change from the start rate), the periodic cap (limits each later change from the prior rate), and the lifetime cap (an absolute ceiling above the start rate). Whichever ceiling is lower than the raw index-plus-margin value wins for that adjustment.
No. It's a stress-test ceiling built by assuming the rate climbs by the full periodic cap at every adjustment until it hits the lifetime cap. Actual index movement is rarely that one-directional, but the figure shows the maximum you could be contractually exposed to.
Because the new payment is based on the balance and time actually remaining at the adjustment date, not the original loan amount or term. A lower balance and shorter remaining term change the payment even independent of the rate change itself.
The example and behavioral notes were checked against the browser implementation. Standards and primary references below define the relevant format, formula, or platform behavior.
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