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

If the prime rate modifications, the interest part of the home mortgage will immediately change, adjusting greater or lower based upon whether rates have increased or decreased. This suggests you might instantly face higher mortgage payments if interest rates increase and lower payments if rates decrease.

ARM vs VRM: Key Differences

ARM and VRMs share some similarities: when rate of interest change, so will the mortgage payment's interest part. However, the key distinctions lie in how the payments are structured.

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