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ARM Reset Shock Calculator
A 5/1 or 7/1 ARM adjusts at the end of the fixed period. New rate = index (SOFR, CMT) + margin, subject to rate caps. Payment shock can be meaningful — 15-40% jump in a rising-rate environment. This calculator projects the reset and new payment.
New monthly payment
$2,660
Payment shock (monthly)
$465
Shock %
21.2%
New rate (capped)
6.750%
New rate (uncapped)
8.000%
Current payment
$2,195
Initial cap limit
6.75%
Lifetime cap limit
9.50%
How the math works
$385K balance at 4.75% resetting with 5.25% index + 2.75% margin = 8% uncapped. Initial cap 2% → 6.75% limit. New rate 6.75% (initial cap binds). Payment jumps from ~$2,200 to ~$2,650 — $450/mo shock (20%).
Plan ahead. 3-6 months before reset, run this calc with the current index. If shock > 10%, explore refi into a 30-year fixed. If the math says sit, do nothing and enjoy paying down principal faster at the new rate.
How to Use
- Enter current balance, current rate, and months remaining on amortization.
- Enter the ARM index (SOFR / CMT), margin, and caps (initial / periodic / lifetime).
- See projected new rate, new payment, and the % shock vs current payment.
Frequently Asked Questions
What are ARM caps?
Three layers. Initial cap: max adjustment at first reset (typically 2%). Periodic cap: max change at each subsequent reset (usually 2%). Lifetime cap: max above start rate (usually 5%). Example 5/2/5: 5 initial, 2 periodic, 5 lifetime.
How is the new rate calculated?
New rate = current index + margin. Most ARMs use 1-year or 6-month SOFR, CMT (Constant Maturity Treasury), or LIBOR (legacy). Margin is fixed in the loan docs (typically 2.25-3%).
Can my payment decrease?
Yes if index falls enough. But after a rate hike cycle, most ARMs reset up. Downward adjustments are bounded by the same periodic cap as upward.
Should I refi before reset?
Depends on post-reset projected rate vs current 30-year fixed. If projected reset rate > fixed market rate, refi. If reset < fixed, keep the ARM. Start the decision 3-6 months before reset date.
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