Adjustable Rate Mortgages and Variable Rate Mortgages

What’s the difference between Adjustable Rate and Variable Rate?

If you’re thinking about opting for a floating mortgage that is influenced by the Prime rate, rather than a fixed-rate mortgage, you might be surprised to know that there is more than one option available.

Adjustable Rate Mortgages change when Prime changes. This can be as much as eight times per year — when the Bank of Canada makes its scheduled announcements. Depending on the Bank’s decision, your monthly mortgage payments can increase, decrease or remain the same.

Variable Rate Mortgages are still reliant on Prime but, depending on the lender, your monthly payment can change at different times. Some lenders allow you to set your monthly payment at the three-year fixed rate, but charge you the variable rate amount. The difference goes towards the principle of the mortgage, and allows you to pay it off faster.

With this type of VRM, your monthly payments remain the same, month after month, until the variable rate exceeds the three-year fixed-rate you’ve been paying. At that point, your lender will send you a notice and readjust your mortgage, increasing your payment to equate the current three-year fixed rate.

Other lenders that offer VRMs may charge you a rate that is slightly higher than the going ARM rate, but your payments only change every quarter rather than every month.

To decide which product is right for you, and which lenders offer them, feel free to pop by our office or give us a call. We can help you determine if a VRM or ARM fit your financial goals.