ARM Reset Calculator

An Adjustable-Rate Mortgage starts with a fixed initial rate (usually 5, 7, or 10 years), then "resets" to a market-based rate annually. Many 7/1 ARMs originated 2018-2020 at sub-4% are resetting in 2025-2027 at current rates of 6-7% - payment shock of $400-$1,500/month for typical loans. Estimated 1.2M loans affected per Mortgage Bankers Association data.

Three caps limit how much rates can increase: First adjustment cap (typically 5% - rate can't jump more than 5% from start), Periodic cap (typically 2% - each subsequent annual adjustment), Lifetime cap (typically 5% over start rate). A 5/2/5 structure: started at 3% can't exceed 8% over the life of the loan. Caps are your friend in rising-rate environments - without them, ARMs would be uninsurable.

Math depends on current 30-year fixed rate vs your post-reset ARM rate. If 30-yr fixed ≥ ARM rate after caps applied, ride it out - refinancing costs (2%-4% of loan) won't pay back. If 30-yr fixed < ARM by 0.5%+, refinance. Also consider: do you plan to stay in the home long enough to recoup closing costs (usually 24-36 months)? If selling soon, neither option matters much.

Yes: (1) Loan recast - pay down principal $5K-$50K, lender re-amortizes payment lower without new closing costs; (2) Loan modification - for distressed borrowers, lender may restructure terms; (3) HELOC + pay down - use HELOC at lower variable rate to pay down ARM principal (risky). Most ARM borrowers in 2026 should be running these numbers BEFORE the reset date hits.

The lifetime cap limits how far your rate can climb above the starting rate, but it can still mean a substantial payment increase. An ARM that starts at 3% with a 5% lifetime cap can reach 8%, which is a considerable jump in the monthly payment.

Divide the total closing costs of the refinance by the monthly savings the new payment would give you. The result is the number of months you need to stay in the home for the refinance to pay off.