How is the remaining loan balance calculated at the first adjustment?

The balance after 120 payments is found using the standard amortisation formula: B120 = P(1+r)^120 - M x [(1+r)^120 - 1] / r, where P is the original principal, r is the monthly rate, and M is the initial monthly payment. This balance then re-amortises at the new rate over the remaining 240 months.

What does the periodic adjustment cap mean in practice?

A 2% periodic cap means the interest rate can rise or fall by no more than 2 percentage points at each annual adjustment after the first change. If your initial rate is 6%, the highest the rate can go at the first reset is 8%, regardless of where the index sits.

Is a 10/1 ARM suitable if I plan to sell before year 10?

It can be — if you are confident you will sell or refinance before the first adjustment, you benefit from the fixed rate without bearing adjustment risk. However, life plans change; it is worth modelling the adjusted payment scenario before committing.

10/1 Adjustable Rate Mortgage (ARM) Calculator

Calculate your initial and adjusted monthly payments for a 10/1 ARM loan, including estimated balance at first adjustment.

By AbraCalc Editorial Team · Reviewed by AbraCalc Methodology Review · Last reviewed: 2026-06-25

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How to use this tool

Enter loan amount, initial annual interest rate (fixed 10 yrs), total loan term and adjusted annual interest rate (after yr 10) in the fields above.
Results update instantly as you type — or click Calculate.
Read your initial monthly payment (yrs 1–10) and the full breakdown beneath it.

⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.

Formula

Initial monthly payment (standard amortization):

M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]

Remaining balance after 120 payments:

B₁₂₀ = P(1+r)¹²⁰ − M × [(1+r)¹²⁰ − 1] / r

Adjusted payment uses B₁₂₀ as the new principal, the adjusted rate, and the remaining months.

How it works

A 10/1 ARM has a fixed interest rate for the first 10 years, then adjusts annually. This calculator computes the fixed-period monthly payment using standard mortgage amortization, determines the outstanding balance at the moment of first adjustment, and recalculates the payment for the remaining term at the new rate.

The adjusted rate entered should reflect the expected new rate after the initial fixed period; in reality it depends on an index (e.g., SOFR) plus a margin set by the lender. This tool assumes the adjusted rate remains constant for the remainder of the loan.

Worked example

$300,000 loan at 6.5% initial / 7% adjusted, 30-year term

Monthly initial rate r = 6.5% / 12 = 0.5417%. Total months n = 360.
Initial payment M = 300,000 × 0.005417 × (1.005417)^360 / [(1.005417)^360 − 1]. (1.005417)^360 ≈ 6.993, so M ≈ 300,000 × 0.037893 / 5.993 ≈ $1,896.20.
After 120 payments, remaining balance B = 300,000×(1.005417)^120 − 1896.20×[(1.005417)^120 − 1]/0.005417. (1.005417)^120 ≈ 1.9120, giving B ≈ $254,265.
Adjusted monthly rate r2 = 7%/12 = 0.5833%. Remaining months = 240. New payment = 254,265 × 0.005833 × (1.005833)^240 / [(1.005833)^240 − 1] ≈ $1,970.80.

Initial monthly payment ≈ $1,896.20; balance at adjustment ≈ $254,265; adjusted payment ≈ $1,970.80.

Common mistakes to avoid

Assuming the adjusted payment is capped only by the periodic cap — 10/1 ARMs typically have both a periodic adjustment cap (e.g. 2%) and a lifetime cap (e.g. 5%); ignoring the lifetime cap leads borrowers to underestimate maximum exposure.
Forgetting that the remaining balance at adjustment is amortised over the remaining 20 years, not the original 30 — the post-adjustment payment is calculated on a shorter term, which raises it beyond what the rate change alone implies.
Using the initial rate to estimate total interest paid over the loan life — the fixed period is only 10 years; projecting total cost without modelling the adjusted rate produces a significant underestimate.

Key terms

10/1 ARM: A hybrid adjustable-rate mortgage with a fixed rate for 10 years, then annual rate adjustments for the remainder of the term.
Amortization: The process of paying off a loan through scheduled, equal payments that cover both principal and interest.
Remaining Balance: The outstanding principal owed on the loan at a given point in the repayment schedule.
Rate Adjustment Cap: A limit on how much the interest rate can change at each adjustment period or over the life of the loan.

Frequently asked questions

How is the remaining loan balance calculated at the first adjustment?: The balance after 120 payments is found using the standard amortisation formula: B120 = P(1+r)^120 - M x [(1+r)^120 - 1] / r, where P is the original principal, r is the monthly rate, and M is the initial monthly payment. This balance then re-amortises at the new rate over the remaining 240 months.
What does the periodic adjustment cap mean in practice?: A 2% periodic cap means the interest rate can rise or fall by no more than 2 percentage points at each annual adjustment after the first change. If your initial rate is 6%, the highest the rate can go at the first reset is 8%, regardless of where the index sits.
Is a 10/1 ARM suitable if I plan to sell before year 10?: It can be — if you are confident you will sell or refinance before the first adjustment, you benefit from the fixed rate without bearing adjustment risk. However, life plans change; it is worth modelling the adjusted payment scenario before committing.