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Interest Cost Calculator (9a)

Fixed Rate Mortgage Versus ARM With No-Negative Amortization

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 after-tax interest cost.

What This Calculator Does:This calculator compares the interest cost on an
ARM without 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)
  Optional: Number of Years Each Loans is Interest-Only
                      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)
Interest Rate Index — (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)
First Rate Adjustment — (ARM Only)
  Number of Months to First Rate Adjustment  (e.g. 36)
  Maximum Interest Rate Change on First Rate Adjustment  (e.g. 5.0)
Subsequent Rate Adjustments — (ARM Only)
  Duration, in Months, Between Subsequent Rate Adjustments  (e.g. 12)
  Maximum Interest Rate Change on Subsequent Rate Adjustments  (e.g. 2.0)
Maximum / Minimum Rates — (ARM Only)
  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
of Years
Per Year
  Upward Movement:— Interest Rate Index Rises for:
 Downward Movement: — Interest Rate Index Declines for:
  Years Between
Direction Changes
Percent Change
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. 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. 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. 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. 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. 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.