Fixed or adjustable, refinance or stay put — every mortgage question is a break-even question, and the math fits on one page.

Every ARM has four moving parts, and all four are printed in the loan documents before you sign. The initial period (the “5” in 5/1) is how long the rate is locked; common terms are 3/1, 5/1, 7/1 and 10/1. The index is the market rate the loan tracks after that — today that is SOFR, the Secured Overnight Financing Rate. The margin — 2.75% in our example — is set by the lender at closing and never changes. And the caps — quoted as 2/2/6 — bound every move: no more than 2% at the first adjustment, no more than 2% per adjustment after that, and never more than 6% above the initial rate for the life of the loan.

Adjusted rate = index + margin, subject to the caps. That single line is the whole machine. Here is what it does to a 5/1 ARM written at 5.25% on a $500,000 loan:

Notice what the caps buy you: even the stress case is a number you can budget for today, years before it can happen. That is the discipline we ask of every ARM borrower — underwrite yourself at the capped rate, not the teaser. If the year-6 payment would break the household budget, the discount years were borrowed comfort.

The typical ARM borrower banks the $23,000-plus of fixed-period savings and then does one of three things: sells before the reset, refinances into a fixed rate when conditions allow, or rides an adjustment that turns out benign. All three are fine outcomes. The only bad outcome is reaching year 6 without having chosen one — which is why the ARM’s reset date goes on the same planning calendar as the pension election and the RMD birthday.

That’s the entire refinance analysis. Closing costs — origination, appraisal, title, escrow, typically 2–5% of the loan — divided by what the new rate saves you each month, gives the number of months until the refinance has paid for itself. Stay in the loan longer than that and the trade works. Sell sooner and you paid fees for a discount you never collected.

The second column deserves the emphasis. A sub-4% mortgage written in 2020–2021 is, at today’s board, one of the best fixed-income positions a household can hold — you are the bank’s low-rate bond. Refinancing it away for cash-out convenience costs four figures a month; if liquidity is the actual goal, that’s a conversation about the whole balance sheet, not the mortgage alone.

And when should a 2025-vintage 7% borrower pull the trigger? When the break-even fits inside their honest holding period — not when a headline says rates fell. Which brings us to what actually moves the quote.

The Fed funds rate — 3.50% and on hold — is the overnight rate banks charge each other. Your mortgage doesn’t price off it; it prices off the 10-year Treasury yield, currently 4.44%, plus a spread. That gap is why mortgage rates have refused to fall even as the Fed has held and headlines promised relief. When long yields drop — on cooling inflation or easing geopolitical risk — mortgage quotes can move half a point in days, with no Fed meeting anywhere in sight.

We don’t build a plan on any one of those rows — we build it so the household is fine in all three. In practice that means the mortgage gets reviewed inside the plan, next to the cash-flow it draws on: whether the payment still fits the retirement contribution schedule, whether an approaching ARM reset needs a decision this year, and whether a refinance break-even now fits your actual timeline. The current course, tested — same as everything else we do.