Adjustable-Rate Mortgage (ARM) Calculator
Estimate the monthly instalments, outstanding balance and total interest of an adjustable-rate mortgage (ARM) across the initial fixed-rate period and after the rate reset.
Input Data
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At a glance:An Adjustable-Rate Mortgage (ARM) is a mortgage that is 'fixed initially, then floating' — for example, a 5/1 ARM fixes the rate for the first 5 years and then adjusts with the market. This calculator uses a simplified two-stage model: the initial period applies one rate, and the post-reset period applies another until the end of the term. The initial instalment is computed by amortisation using the initial rate over the full term; the loan is amortised to the end of the fixed period to derive the outstanding balance; the post-reset instalment is recomputed on that balance at the adjusted rate. Example: a HK$3,000,000 mortgage over 30 years, initial rate 3%, fixed for 5 years, then reset to 5%, gives an initial monthly payment of about HK$12,648.12; after 5 years, when the rate rises to 5%, the payment for the remaining 25 years rises to about HK$15,592.13. The initial ARM payment is usually lower than a fixed-rate mortgage, but can rise significantly when rates climb. WARNING: This model assumes a single reset that then stays fixed; it does not account for rate caps, multiple resets or index spreads. Actual payments are subject to the lender's contract and market rates. Hong Kong mortgages are mostly linked to HIBOR / Prime rate, which is similar in nature.
Formula
Initial monthly payment M_init = P x r1(1+r1)^n / ((1+r1)^n - 1), r1 = initial monthly rate, n = total months (years x 12).
Outstanding balance after fixed period B = P(1+r1)^k - M_init x ((1+r1)^k - 1)/r1, k = fixed months.
Adjusted monthly payment M_adj = B x r2(1+r2)^(n-k) / ((1+r2)^(n-k) - 1), r2 = adjusted monthly rate.
Total repayment = M_init x k + M_adj x (n - k); total interest = total repayment - P.
$$M_{\text{init}} = P \times \dfrac{r_1(1+r_1)^n}{(1+r_1)^n - 1}$$$$B = P(1+r_1)^{k} - M_{\text{init}}\dfrac{(1+r_1)^{k}-1}{r_1}$$$$M_{\text{adj}} = B \times \dfrac{r_2(1+r_2)^{n-k}}{(1+r_2)^{n-k} - 1}$$How to Use
- Enter the mortgage principal and total loan term.
- Enter the initial annual rate, the initial fixed period and the adjusted annual rate.
- View the initial and adjusted monthly payments, the outstanding balance at reset, total repayment and total interest.
FAQ
What does a 5/1 ARM mean?
A 5/1 ARM fixes the rate for the first 5 years, then adjusts with the market every year thereafter. This calculator uses a simplified two-stage model: the fixed period uses the initial rate, then a single adjusted rate applies until the end of the term, so you can see directly how a rate rise affects payments. A real ARM may reset multiple times.
Why does the payment change after reset?
During the fixed period you pay at the initial rate, leaving an outstanding balance at the end. Thereafter a new (usually higher) rate is applied to that balance over the remaining term, so payments rise if rates go up. If the adjusted rate equals the initial rate, the payment stays the same.
Who is an ARM suitable for?
The initial ARM payment is usually lower than a fixed-rate mortgage, making it suitable for borrowers who expect to hold the property short-term, or whose income will rise and who can absorb higher payments later. But if rates rise sharply, the burden increases significantly — you should stress-test with a higher reset rate before deciding. In Hong Kong most mortgages are floating (linked to HIBOR or Prime), which is similar in nature.
Do Hong Kong's H-plan and P-plan count as ARMs?
Broadly, yes. Hong Kong residential mortgages are mostly floating, split between the H-plan (HIBOR + spread) and the P-plan (Prime - discount), both moving with the market — consistent with an ARM's 'rate adjusts with the market' nature. The difference is that Hong Kong's H-plan usually has a 'cap rate' (capped at the P-plan level) that protects against rises, whereas an ARM typically uses a 'fixed period then floating' structure. This calculator's two-stage model can illustrate how a floating mortgage's payment changes after a rate rise.
What stress test should I note before taking a floating mortgage?
The Hong Kong Monetary Authority (HKMA) requires a mortgage stress test — banks assess affordability at an assumed rate several percentage points above the prevailing rate to confirm the debt-servicing ratio (DSR) stays within limits even if rates rise. Even after approval, you should stress-test with a more conservative rate (e.g. 2-3 percentage points higher) and keep a cash buffer to avoid losing control during a rising-rate cycle. Refer to the latest HKMA guidance and bank policies for the exact requirements.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.