An adjustable-rate mortgage (ARM) is a type of variable mortgage that sees home loan payments fluctuate going up or down based on modifications to the lender's prime rate. The principal portion of the mortgage stays the exact same throughout the term, maintaining your amortization schedule.

If the prime rate modifications, the interest portion of the mortgage will immediately change, adjusting greater or lower based on whether rates have actually increased or reduced. This implies you could instantly deal with greater home mortgage payments if rate of interest increase and lower payments if rates reduce.

ARM vs VRM: Key Differences

ARM and VRMs share some resemblances: when rates of interest change, so will the home loan payment's interest portion. However, the essential differences depend on how the payments are structured.

With both VRMs and ARMs, the interest rate will change when the prime rate changes