Variable Rate Mortgages, what’s the difference?

Let’s talk about the difference in variable rate mortgage products.

If your mortgage is up for renewal, and you are considering a variable rate in the interim with the thought of fixed rates coming down potentially later this year, this one's for you. 

Lenders who deal exclusively in mortgages, offer an adjustable rate mortgage or (ARM) where your payment changes as prime rate changes as opposed to a Variable Rate Mortgage or VRM offered by most big banks where your payment remains the same regardless of whether prime goes up or down. 

The upside to an ARM is that your amortization stays on track for the term. If you signed a 5 year term and you start with 25 year amortization, at the end of the 5 year term, you have 20 years remaining. Whereas with a VRM if your static payments are not enough to keep your amortization on track, you may owe a large lump sum at the end of your term, or your payments will need to increase enough to get your amortization on track.

The downside to an ARM is that your payments will fluctuate as prime changes and that may affect your monthly budget unlike the VRM where your payment stays the same each time and that can make budgeting smoother. 

It’s important to talk with your mortgage professional about which option might be best for you. Share this with someone you know whose mortgage may be up for renewal and is weighing their options. If you’d like more information please feel free to call/text or email me.