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Interest Cost Calculator (9b)

Fixed-Rate Mortgage Versus ARM With Negative Amortization

Who This Calculator is For: Borrowers trying to decide whether they should
select an adjustable rate mortgage (ARM) with negative amortization
or a fixed rate mortgage (FRM) based on the lowest after-tax interest cost.

What This Calculator Does:This calculator compares the interest cost on an ARM
with negative amortization and an FRM, taking account of all financing costs,
before and after taxes, over expected holding periods chosen by the user.

Information About Yourself
   Is This Loan for the Purchase of a Property or a Refinance?
  Expected Years in House, Cannot Exceed Term
  What Do You Expect Your Down Payment to Be?
  Income Tax Bracket ( e.g. 27 )
  Loan Amount  (e.g. 100000)
  Will Mortgage Insurance be Deductible for You? Yes      No  
Basic Loan Information
  Initial Interest Rate on Loan  (e.g. 7.50)
  Points  (% of Loan)
  Loan Term (in years)
    Other Upfront Fees and Charges  —(May be Entered as a % of Loan or $$ Amount)
Type of Fee FRM ARM
  Application Fee  (Usually a $$ Amount)
  Commitment Fee  (% of Loan)
  Origination Fee  (Usually % of Loan)
  Mortgage Broker Fee  (Usually % of Loan)
  Credit Report  ($$ Amount)
  Appraisal  ($$ Amount)
  All Other Fees Paid to Lender
  Mortgage Insurance (Monthly Premium in dollars)
Payment Information —  (ARM Only)
  Initial Monthly Payment of Principal and Interest  (e.g., 753.45)
  Payment Adjustment Period, in Months  (e.g., 12)
  Payment Adjustment Cap, in Percent  (e.g., 7.5 - if no cap, leave blank)
  Payment Recast Period, in Years  (e.g., 5 - if no recast period, leave blank)
  Negative Amortization Cap, in Percent  (e.g., 110 - if no cap, leave blank)
Interest Rate Information — (ARM Only)
  Current Value of ARM Interest Rate Index  ( e.g. 1.54 )
  Margin That is Added to Interest Rate Index  (e.g. 2.75)
  Number of Months to First Rate Adjustment  (e.g. 36)
  Duration, in Months, Between Subsequent Rate Adjustments  (e.g. 12)
  Maximum Interest Rate Over Life of Mortgage  (e.g. 12.5)
  Minimum Interest Rate Over Life of Mortgage  (e.g. 4.5)
Assumptions About Future Interest Rates — (ARM Only)
 Stable Index: — Interest Rate Index Stays Unchanged for Life of Mortgage
 Worst Case: — Interest Rate Rises to the Maximum Allowable Rate in the Second Month
  Number of Years Percent
Per Year
 Upward Movement: — Interest Rate Index Rises for:
 Downward Movement: — Interest Rate Index Declines for:
  Years Between
Direction Changes
Per Year
Volatile: — Interest Rate Index Rises, Then Declines:
 Volatile: — Interest Rate Index Declines, Then Rises:


This is your marginal tax rate, the rate at which each additional dollar of income will be taxed. If you pay only Federal income taxes, it is the highest tax bracket you used when you calculated your taxes. Federal tax brackets currently are: 10%, 15%, 25%, 28%, 33%, and 35%. If you also pay state and/or local income taxes, these marginal rates can be added to the Federal rate. For example, if you had to pay 25% to the IRS and 5% to the state of Pennsylvania, your tax bracket is 30%. To perform a "pre-tax" analysis enter zero (0) as the tax rate. Mortgage Insurance is now tax deductible if your income is $100,000 or less for a couple, $50,000 or less for a single person. The period cannot exceed the shortest mortgage term. The period may be stated in fractions. For example, 25 years and 1 month would be entered as 25.083, 25 years and two months would be 25.167, and 25 years and 3 months would be 25.25, etc. Select the specific index used by your ARM from the ARM disclosure form. To find its current value, see the sources in Adjustable Rate Mortgage Indexes. Slide mouse over yellow box at beginning of line to close pop-up. The amount that is added to the index value on a rate adjustment date. It is shown in the ARM disclosure form. Begin with the month in which the first payment is due. This is the number of months until the first rate adjustment. This is the maximum amount that the interest rate can change on the first rate adjustment. ARMs that have initial rate periods of 5 years or longer often have larger adjustment caps on the first rate adjustment than on subsequent adjustments. After the initial rate period, the rate on most ARMs changes every year, every 6 months, or every month. This affects the relative cost of ARMs and FRMs because ARMs tend to have lower costs in the early years. Down payment as a percent of sale price or property value, whichever is lower. This affects the relative cost of ARMs and FRMs because mortgage insurance premiums are higher on some ARMs. Any number up to 10 will be assumed to be a percent of the loan amount. Any number above 10 will be treated as a dollar amount. Be sure you do not include taxes, hazard insurance, or mortgage insurance. You can safely leave out any expenses expressed as a percent of the loan which are the same for the FRM and ARM, such as title insurance or transaction taxes. If the FRM and ARM loan amounts are the same, you can also leave out any dollar expenses which are the same for both mortgages, such as charges by escrow agents for closing services. This affects the after-tax interest cost because on a purchase transaction points are fully deductible in the first year whereas on a refinance the deduction must be spread over the life of the loan, with the remaining portion of the deduction taken in the year the loan is paid in full. Given the down payment, term and mortgage type you have selected, the numbers shown are typical annual premium rates for "monthly premium plans" that involve no upfront premium. You can override these numbers if you are quoted different rates for monthly premium plans. This is the number of months the payment remains the same This is the largest percent increase or decrease in the monthly payment. It may be overridden at the end of a payment recast period, or in the event that the negative amortization cap is breached. At the end of each recast period, the payment of principal and interest will be recalculated to be fully-amortizing over the remaining term. The balance can never exceed this percent of the original loan balance. When it reaches that level, the payment is increased to the amount that will fully amortize the loan over the remaining term.