Adjustable-rate payment after each reset, with caps and the worst case
Updated 2026-10-02
An adjustable-rate mortgage (ARM) has a fixed rate for the first years, then resets to the index plus the margin, limited by its rate caps. Enter the start rate, fixed period, caps, margin and the index you want to test to see the payment after each reset, the worst case if rates rise at every reset, and how it compares with a fixed-rate loan. Price a fixed-rate loan · test a refinance before the reset.
Your ARM
Your payments
Payment during the fixed period
$2,398.20
at 6% for 5 years
Payment after the first reset
$2,630.76
at 7% if the index stays at 4.3%
Worst-case payment
$3,630.26
at the 11% lifetime cap
Fixed-rate payment to compare
$2,528.27
qualifying rate 8%: $2,935.06
From
Rate, index scenario
Payment
Rate, worst case
Payment
Start
6%
$2,398.20
6%
$2,398.20
Month 61 (year 6)
7%
$2,630.76
8%
$2,872.83
Month 67 (year 6)
7%
$2,630.76
9%
$3,120.61
Month 73 (year 7)
7%
$2,630.76
10%
$3,373.32
Month 79 (year 7)
7%
$2,630.76
11%
$3,630.26
Estimates for planning, not a loan offer or financial advice. Every rate and cost here is a number you enter or an example you can change; confirm figures with your lender.
How ARM payments are calculated
New rate = index + margin (rounded to the nearest 1/8 point), limited by the cap for that reset, the lifetime cap and the margin floor New payment = B × r ÷ (1 − (1 + r)−m)
B is the balance at the reset, r is the new rate ÷ 12 and m is the number of months left on the loan. During the fixed period the payment is the standard amortizing payment at the start rate. At the first reset the rate can move by up to the initial cap; at later resets by up to the subsequent cap; and never more than the lifetime cap above the start rate. The "index scenario" column holds the index where you set it; the "worst case" column assumes the rate rises by the full cap at every reset until it hits the lifetime cap.
Worked example
A $400,000 30-year 5/6 ARM (fixed for 5 years, then adjusting every 6 months) starts at 6% with 2/1/5 caps and a 2.75% margin. The payment is $2,398.20. With the index at 4.3%, the fully indexed rate is 7.05%, rounded to 7%, within the 2-point first cap, so the rate resets to 7% and the payment to $2,630.76. In the worst case the rate goes to 8%, then 9%, 10% and 11%, and the payment reaches $3,630.26. A 6.5% fixed-rate loan would cost $2,528.27 for all 30 years.
The rules behind the caps
The Consumer Financial Protection Bureau explains how ARM rate caps work (reviewed January 2025): the initial adjustment cap is commonly 2 or 5 percentage points, the subsequent cap most commonly 1 or 2, and the lifetime cap most commonly 5. Fannie Mae's Selling Guide B2-1.4-02 (December 10, 2025) requires its ARMs to use a 30-day average of SOFR as the index, caps the margin at 300 basis points, and says the fully indexed rate is rounded to the nearest one-eighth percent and the rate may never fall below the margin. Its qualifying payment rule B3-6-04 (February 7, 2024) qualifies an ARM with a 5-year fixed period at the greater of the note rate plus the first change cap or the fully indexed rate, one with a fixed period of 3 years or less at the highest rate possible in the first five years, and longer fixed periods at no less than the note rate. Caps, margin and index for your loan are in your Loan Estimate and note.
Questions to check before choosing an ARM
How long you expect to keep the loan. If you expect to sell or refinance before the first reset, the fixed period matters most.
The worst-case payment. Compare it with your budget and your debt-to-income ratio.
Refinance cost. Refinancing before a reset has closing costs; the refinance break-even calculator shows how long they take to recover.
This is an estimate for planning using the index you enter; future index values are unknown, and your loan documents are final.
Run the numbers like a pro
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How is an ARM payment calculated after the fixed period?
At each reset the new rate is the index plus the margin, limited by the rate caps, and the payment is recalculated to repay the remaining balance over the remaining term. In the example, a 5/6 ARM at 6% with a 2.75% margin and a 4.3% index resets to 7% (7.05% rounded to the nearest eighth) in month 61, and the payment moves from $2,398.20 to $2,630.76.
What do ARM caps like 2/1/5 mean?
The first number limits the first rate change, the second limits each later change, and the third limits the total change over the life of the loan. The CFPB notes the initial cap is commonly 2 or 5 percentage points, the subsequent cap 1 or 2, and the lifetime cap most commonly 5.
What is the highest my ARM payment can go?
If the rate rises by the full cap at every reset until it reaches the lifetime cap, the example loan's rate tops out at 11% and the payment at $3,630.26. Your Loan Estimate shows the maximum payment for your loan.
Can an ARM rate go down?
Yes, if the index falls, by up to the cap at each reset. Fannie Mae's Selling Guide says the rate may never fall below the ARM's margin, regardless of any downward cap.
What rate do lenders use to qualify me for an ARM?
Fannie Mae's guide uses the greater of the note rate plus the first change cap or the fully indexed rate for an ARM with a 5-year fixed period. For the example that is 8%, a payment of $2,935.06. With a fixed period of 3 years or less it uses the highest rate that could apply in the first five years, and with a fixed period longer than five years, no less than the note rate.
