Introduction: In the Canadian mortgage market, borrowers have various options to choose from, including variable mortgages. A variable mortgage, also known as a variable rate mortgage (VRM), offers flexibility and the potential for cost savings. In this blog post, we’ll explore the different types of variable mortgages available in Canada, giving you a better understanding of the options at your disposal.

1. Prime Rate-Based Variable Mortgage: The most common type of variable mortgage in Canada is tied to the lender’s prime rate. The interest rate on these mortgages fluctuates based on changes in the prime rate, which is influenced by the Bank of Canada’s overnight lending rate. Borrowers typically pay a discount or premium to the prime rate, such as prime minus 0.50%.
2. Adjustable Rate Mortgage (ARM): An adjustable rate mortgage, similar to a prime rate-based variable mortgage, is tied to the lender’s prime rate. However, instead of a fixed discount or premium, the interest rate adjusts periodically based on market conditions. This adjustment can occur annually, semi-annually, or even monthly, depending on the terms of the mortgage.
3. Adjustable Payment Mortgage: In an adjustable payment mortgage, the interest rate remains variable, but the payment amount stays fixed for a specified period. This allows borrowers to have consistent monthly payments, providing them with stability during that period. However, the outstanding interest may vary, resulting in adjustments to the principal portion of the payment.

Conclusion: Variable mortgages offer borrowers flexibility and the potential for cost savings in a changing interest rate environment. Whether you opt for a prime rate-based variable mortgage, an adjustable rate mortgage, an adjustable payment mortgage, or a collateral charge mortgage, it’s important to carefully consider your financial goals, risk tolerance, and future plans. Consult with a mortgage professional to explore these options in more detail and determine which type of variable mortgage aligns best with your needs. Remember, each individual’s circumstances are unique, so it’s crucial to choose a mortgage that suits your specific requirements.

Written by Chat-GPT