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

If the prime rate changes, the interest portion of the home mortgage will immediately change, changing greater or lower based upon whether rates have increased or reduced. This indicates you might instantly face higher home loan payments if interest rates increase and lower payments if rates reduce.

ARM vs VRM: Key Differences

ARM and VRMs share some resemblances: when interest rates alter, so will the home mortgage payment's interest part. However, the key distinctions depend on how the payments are structured.

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