What’s the Difference Between a Variable Rate Mortgage and an Adjustable Rate Mortgage?

Tim Lyon • September 24, 2025

When considering a variable-rate mortgage, you’ll come across two different types: the Variable Rate Mortgage (VRM) and the Adjustable Rate Mortgage (ARM). While both are tied to your lender’s prime rate and move when the Bank of Canada changes rates, they work differently and those differences can impact your budget and long-term strategy.

Both are colloquially referred to as “variable mortgages,” so it’s important to understand and clarify which one you are being offered if you’re considering a variable option. In this post, we’ll break down how ARMs and VRMs work, the pros and cons of each, and which option may suit your financial goals better.



What Are ARM and VRM Mortgages?

Variable Rate Mortgage (VRM): Your payment amount stays the same when rates change, but the portion of each payment that goes toward principal versus interest adjusts.

Adjustable Rate Mortgage (ARM): Your payment amount itself changes whenever the lender’s prime rate moves.


How Do They Work?

VRM: Fixed Payment, Shifting Balance
  • Your monthly payment stays constant.
  • If interest rates go down, more of your payment goes toward principal, helping you pay off your mortgage faster.
  • If interest rates go up, more of your payment goes toward interest, slowing your progress on the principal.
  • If rates rise significantly, lenders may increase your payment to make sure it still covers interest owing.


ARM: Payment Moves With Rates
  • Your payment is recalculated each time the prime rate changes.
  • If interest rates go down, your payment decreases.
  • If rates go up, your payment increases.
  • The principal vs. interest portion of your payment remains more consistent compared to a VRM.


Pros and Cons

VRM Pros:
  • Predictable monthly payment amount
  • Benefit from rate drops through faster principal repayment
  • Easier for budgeting in the short term
VRM Cons:
  • Progress on principal slows if rates rise
  • Risk of payment shock if rates rise too much and the lender resets your payment higher


ARM Pros:
  • Payments decrease when rates fall
  • Principal repayment stays on track, even when rates change
  • Clearer link between rates and what you pay monthly
ARM Cons:
  • Payments increase right away if rates rise
  • Harder to budget with changing monthly payments


Quick Summary

• VRM = fixed payment, changing interest/principal split.
• ARM = changing payment, consistent repayment pace.
• Both are tied to prime, but they affect budgeting differently.


Next Steps

Choosing between ARM and VRM depends on your comfort with changing payments versus changing repayment speed. If you’d like to review which one is best for your situation, I’d be happy to walk you through the options.

Need help with your mortgage? Book a consultation or call 778-988-8409.


Mortgage Term Glossary

Adjustable Rate Mortgage (ARM): A variable mortgage where the payment amount increases or decreases as rates change.
Amortization: The total length of time it will take to pay off your mortgage completely (typically 25–30 years in Canada).
Discount (Variable Rate): The amount subtracted from prime to determine your actual mortgage rate.
Equity: The difference between what your home is worth and what you owe on your mortgage.
Mortgage Term: The length of your mortgage contract with your lender (typically 1–5 years), after which you need to renew.
Prime Rate: The interest rate banks use as a baseline for loans, influenced by the Bank of Canada’s overnight rate.
Variable Rate Mortgage (VRM): A variable mortgage where payments stay the same, but the interest vs. principal portion shifts with rates.
Variable Rate: An interest rate that changes during your mortgage term based on lender prime rates.



Tim Lyon

Mortgage Consultant

25 Year vs 30 Year Amortization: A Practical Guide

By Tim Lyon • January 25, 2026
Trying to choose between a 25 and 30 year mortgage amortization? Learn how each affects your payments, interest, and flexibility so you can decide with confidence.

How Rental Income Impacts Your Mortgage Approval (And Why Lender Choice Matters)

By Tim Lyon • January 20, 2026
If you are buying a home with a suite, keeping your current home as a rental, or already own a rental property, mortgage qualification can get confusing fast. The frustrating part is that you can do everything “right” and still get very different answers depending on which lender you talk to. Here’s a simple breakdown so you understand it and don’t miss out. What are Debt Service Ratios? In Canada, lenders qualify you using two main ratios: Gross Debt Service (GDS) This looks at housing costs only , typically: Mortgage payment Property taxes Heating 50% of strata fees (if applicable) GDS typically needs to be 39% or less of your gross income. Total Debt Service (TDS) This includes everything in GDS , plus other debts like: Car loans Credit cards Lines of credit Student loans TDS typically needs to be 44% or less of your gross income. These ratios are the foundation. If they do not work, the lender will not approve the mortgage, even with strong credit and a solid down payment. How Lenders Treat Rental Income Most people assume lenders look at rental properties based on simple cash flow (rent minus mortgage payment). In reality, most lenders use one of two methods: 1) Addback A percentage of the rental income is added to your gross income for qualification purposes. 2)Offset A percentage of the rental income is subtracted from the mortgage payment tied to the rental property. Different lenders use different percentages and different worksheets. That is why the same borrower can qualify with one lender and fail with another. Benefits of Understanding Lender Methods When you understand how rental income is calculated, you can: Avoid being under-qualified by a lender with conservative rules Get a more accurate picture of your real purchasing power Choose a lender that fits your situation (instead of forcing your situation to fit the lender) Important Considerations A few key points to keep in mind: Rental income is rarely counted at 100% , but some lenders are more generous than others. The method matters just as much as the percentage (addback vs offset). If you own multiple properties, lender worksheets can change the result dramatically. Your lender choice is a strategy decision , not just a rate decision. Real-World Example: Same Clients, Two Very Different Outcomes Here’s an example comparing lenders Scotiabank and Strive, using a fictitious couple: Scenario Household income: $160,000 Existing townhome: $800,000 value with a $525,000 mortgage ( $2,500/month payment) Market rent for the townhome: $3,400/month New purchase: property with a rental suite generating $1,800/month Down payment: 10% Other debts: student loan $165/month , car loan $500/month How Scotiabank viewed it For the townhome rental, they counted half the rent and subtracted the mortgage payment, leaving an $800/month shortfall that gets added into the debt ratios. For the new purchase, 50% of the suite income gets added to income. Max mortgage : $650,700 Max purchase price : $723,000 How Strive viewed it For the townhome rental, Strive used a rental worksheet and calculated $5.20/month of income that can be added to the application. For the new purchase, 100% of the suite income gets added to income, and they did not need to include taxes or heat. Max mortgage : $878,400 Max purchase price : $976,000 The result That’s a $253,000 difference in purchasing power , with the same clients, same income, same debts, and same properties. The difference was lender policy. Quick Summary GDS and TDS ratios are the backbone of mortgage qualification. Rental income is usually counted using Addback or Offset , and each lender handles this differently. Two lenders can produce wildly different results, even with the exact same file. In the example above, lender choice created a $253,000 swing in purchasing power. Next Steps If you are planning to: Buy a home with a suite Keep your current home and convert it to a rental Use rental income to qualify Reach out and I will run the numbers across multiple lenders so you see what you actually qualify for, not just what one lender will allow. Need help with your mortgage? Book a consultation or call 778-988-8409 . Glossary Addback : A method where a lender adds a percentage of rental income to your gross income for qualification. Gross Debt Service (GDS) : The ratio that measures housing costs as a percentage of gross income. Offset : A method where a lender subtracts a percentage of rental income from the rental property’s mortgage payment for qualification. Total Debt Service (TDS) : The ratio that measures housing costs plus other debts as a percentage of gross income.