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An adjustable-rate mortgage (ARM) is a variable-rate mortgage where the payment amount itself rises or falls every time the lender’s prime rate changes, rather than staying fixed for the term.
Both products track prime, but they route the change differently. A typical Canadian VRM keeps the payment flat and lets the principal/interest split move; an ARM does the opposite — it keeps the amortization schedule roughly on track by adjusting the payment itself whenever prime moves.
Because the payment adjusts with the rate, an ARM doesn’t carry the same trigger-rate risk as a static-payment VRM — there’s no scenario where the fixed payment falls behind the interest owed, since the payment isn’t fixed in the first place.
Same qualifying rules: ARMs are stress tested at the minimum qualifying rate — the greater of the contract rate plus 2 percentage points or 5.25% — identical to any other variable product.
Less common branding: Canadian lenders more often market this structure as an “adjustable payment” variable mortgage than as a distinct “ARM” product line, but the mechanics are the same.
No trigger-point exposure: because the payment moves with prime, an ARM avoids the negative-amortization risk that a static-payment VRM can face in a rising-rate environment.
Payment frequency still applies: borrowers can typically still choose monthly, bi-weekly, or accelerated payment frequency on top of the rate-driven adjustments.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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