Future Value Calculator (9ai)

Comparing an ARM with a FRM

Who This Calculator is For: Borrowers trying to decide whether they should select
an adjustable rate mortgage (ARM) without negative amortization or a fixed
rate mortgage (FRM) based on the lowest cost over a specified future period.

What This Calculator Does: This calculator compares the total cost of a new adjustable
rate mortgage with that of a new fixed-rate mortgage, over a specified future period.

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. 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. 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. If you enter a value, mortgage insurance will be terminated when the loan balance equals 80% of the appreciated value of the property after year 5, or 75% during years 2 to 5. 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. Enter 1 if you want the rate increase to begin immediately, 2 if you want it to begin at the start of year 2, and so on.