What is a Variable Rate Mortgage (VRM)?

A Variable Rate Mortgage (VRM) is defined by its characteristic of having an interest rate that adjusts periodically based on market conditions. This means that the interest rate can fluctuate over the life of the mortgage, resulting in varying monthly payments for the borrower.

The adjustments typically occur at defined intervals, such as annually or semi-annually, and the rate is usually tied to a financial index. As market interest rates rise or fall, the borrower's payments will also increase or decrease accordingly. This can present opportunities for lower payments when rates are low, but it can also expose borrowers to risks if rates increase significantly.

Therefore, understanding that VRMs offer a dynamic approach to mortgage borrowing is crucial, especially for buyers who may benefit from lower initial rates but should be prepared for potential increases in their monthly payments in the future. This contrasts with fixed-rate mortgages, where the interest rate remains constant throughout the loan term, providing predictable payment amounts.