Mortgage Terms Glossary

So much to know about your mortgage.

Here are some definitions to help out. Our friendly, expert brokers always have the time, if you have more questions.

Jump to Letter

A

Adjustable-Rate Mortgage (ARM)
An ARM is a variable rate product where the payments 'float' up or down along with changes in the prime rate to account for the interest cost portion of the payment. The amounts going to your mortgage principal remain unaffected during your term, and your amortization stays on track.

The payment change happens at the end of a full payment period, usually the payment after the upcoming one. There may be certain benefits of an ARM vs the static payments of a VRM (Variable-Rate Mortgage) that help ensure mortgage balance stability.

Agreement of Purchase and Sales
The legal contract a purchaser and a seller enter into. We recommend that you have your offer prepared by a professional realtor who has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions.

Alternative Lender (or Product)
Also called a B Lender, an alternative lender is federally or provincial regulated but offers more flexibility in mortgage approval criteria compared to a traditional (A) lender, which typically features one-size-fits-all mortgages structured to tick all the qualification boxes for the lowest risk to the lender.

Alternative lenders can refer to any mortgage lender that isn't a Big Six Bank (RBC, TD, Scotiabank, BMO, CIBC, and National Bank), including smaller or regional banks and non-bank lenders. Non-bank lenders include credit unions, trust companies, and mortgage finance companies (MFCs). Traditional and alternative lenders can offer both A and B products, though the latter will still likely offer more flex in seeing the big picture for approval.

Read more: What is an alternative lender?

Amortization Period
The number of years it takes to repay the entire mortgage loan through a schedule of pre-determined payments that combine interest and principal amounts. The current standard amortization is 25 years, and having more time to pay off your mortgage is an extended amortization.

Appraisal
The process of determining the market value of a property. A lender will often require an appraisal to confirm the market value of the property for purchase or a refinance.

Annual Percentage Rate (APR)
The APR, which is required to be listed on all mortgage commitments, represents the actual cost of your mortgage boiled down to a percentage. It takes into account main expenses such as the mortgage contract rate, certain closing costs, and fees and rebates.

Assets
Resources of value that you own or can access. Often used in determining net worth or in securing financing.

Assumption Agreement
A legal document signed by a buyer that requires the buyer to assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt.

B

B Lender
As part of the alternative lending space, a B lender is federally or provincial regulated but offers more flexibility in mortgage approval criteria compared to a traditional (A) lender, which typically features one-size-fits-all mortgages structured to tick all the qualification boxes for the lowest risk to the lender.

B Lenders can refer to any mortgage lender that isn't a Big Six Bank (RBC, TD, Scotiabank, BMO, CIBC, and National Bank), including smaller or regional banks and non-bank lenders. Non-bank lenders include credit unions, trust companies, and mortgage finance companies (MFCs).

Read more: Experts in complex mortgage solutions

Blend and Extend
A mortgage blend and extend is a refinancing option offered by some lenders that allows you to combine your existing mortgage rate with a new interest rate and extend the term of your mortgage without breaking the current mortgage contract. It's a way to take advantage of lower interest rates or access additional funds while avoiding pre-payment penalties.

Blended Payments
Equal payments, consisting of both interest and principal components. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.

Blind Bidding
In blind bidding, competing offers for a home or property are placed without the transparency of knowing what the other offers contain — meaning the successful bidder could wind up paying significantly more than the original asking price of the property.

This type of 'non-transparent' bidding has seen a recent resurgence in Canada in reaction to a pandemic buying surge, which has been said to further drive up house prices and exacerbate housing inventory issues, especially in heated large-centre markets, such as Vancouver, Victoria and Toronto.

Read more: Blind vs Open Bidding

Bona-fide Sale Clause
This very restrictive mortgage condition means you can't leave your lender or pay out your mortgage during your term unless you sell your property. Often tacked onto 'ultra-low rate' mortgages, this clause protects the lender from incurring additional costs during the term. Other restrictions may also apply, such as hefty refinance fees, lack of pre-payment privileges, or additional sales conditions that may limit the sale price or to whom you can sell your home.

Bridge Financing
Also known as interim or gap financing, a short-term loan at a higher interest rate (prime + 3% or 4%) that allows you to span overlapping closing dates when buying a home and selling your existing one. Secured against home equity, the down payment for a new home is borrowed from your existing home and allows your mortgage to temporarily span both homes until both deals are resolved.

Read more: Bridge Financing

Bully Offer
A bully offer is also known as a pre-emptive offer — a high-pressure surprise tactic to make an early bid on a home or property in an effort to secure the sale before other prospective buyers even have a chance to bid. It comes in well before the seller's set offer date, is often stripped of some or all conditions of sale (that are designed to protect the buyer), and typically with an above-list price.

C

Canada Mortgage and Housing Corporation (CMHC)
CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they insure mortgages for lenders, so that when a borrower has less than 20% down payment of the purchase price or value of the home, for a Loan-to-Value of greater than 80%, they are still able to secure a mortgage loan.

This type of insured mortgage is often referred to as a high-ratio mortgage. Even though the mortgage default insurance is for the lender, the borrower typically pays the cost through a premium that is generally added to the mortgage amount.

Clean Offer
Also referred to as a 'no-conditions' offer, it's an offer made on a home listed for sale that is completely stripped of typical sale conditions in order to speed up the process of buying a home.

Closed Mortgage
A mortgage that cannot be prepaid or renegotiated for a set period of time without penalties and fees.

Closing Costs
The fees and taxes due at the closing of a mortgage agreement, which can include Land Transfer Tax (LTT) or title transfer tax, legal fees, and outstanding utilities and property taxes.

Read more:
Mortgage Closing Costs for Buyers
Mortgage FAQs

Closing Date
The date on which the new owner takes possession of the property and the sale becomes final.

Collateral
An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.

Collateral Mortgage Charge
A type of mortgage registration on the home's title that can be placed for up to 125% of the home's value. This charge allows the lender to loan you more money than the original mortgage balance, for example, for a home equity line of credit (HELOC), without requiring you to apply for a refinance. However, it can also result in higher rates and can be more costly to move your mortgage to a new lender.

Conditions of Sale
A buyer will place particular conditions as part of a contract (offer) to buy a home, which means the title remains with the seller until the buyer meets the conditions by a specified deadline to finalize the sale. The typical conditions of sale are: Financing, Sale of Existing Home, Home Inspection and Condo Document Review.

These conditions are designed to protect the buyer in case something adverse occurs to interfere with their ability or desire to finalize the contract. During the conditional period, the seller has an 'escape clause' that allows them to still consider other offers, but has to notify and allow the buyer first right of refusal (within 24-48 hours).

Conventional Mortgage
A mortgage of 80% or less Loan-to-Value (LTV) of the purchase price or the value of the property (20% or more down payment). A mortgage exceeding 80% LTV is referred to as a 'high-ratio' mortgage which legally requires insurance.

Co-Signer
A co-signer is a person with established credit record and sufficient income that is added to both the mortgage and the home's title in order to help someone secure a mortgage loan. A co-signer is 100% liable for the payments and assumes part ownership of the home (and so takes on more risk than a guarantor).

Credit Scoring
A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower’s credit worthiness. In Canada, credit scoring is provided by either Equifax or TransUnion. Read our blog Credit 101 for more info.

D

Deflation
Refers to a downward trend of prices that may benefit consumers for a time but may harm various sectors of the economy, including borrowers. Usually, inflation has been at normal levels and so deflation indicates an undesirable price direction for maintaining national economic health.

Disinflation
Refers to a downward change in the inflation rate, usually where the inflation may still be higher overall but has reduced in the short term or is on its way to reducing to normal inflation rates.

Demand Loan
A loan where the balance must be repaid upon request.

Deposit
A sum of money put in trust by the buyer making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing real estate broker, lawyer, or notary until the closing of the sale, at which point it is given to the vendor. If a house sale does not close due to the buyer's failure to comply with the terms set out in the offer, the buyer forfeits the deposit, and it is given to the seller as compensation for breaking the contract (the offer).

Down Payment
The amount of cash you put towards your home or property purchase that indicates to lenders your financial commitment in securing a mortgage loan.

The size of down payment can affect the type of mortgage loan for which you'll qualify: A down payment of less than 20% of the property's value (often referred to as a high-ratio mortgage) requires mortgage default insurance, which comes with added premiums. A down payment of 20% or more of the property's value is called a conventional mortgage which doesn't require insurance, but may come with higher interest rates.

E

Effective Annual Rate (EAR)
An EAR is the mortgage interest rate that combines your contract rate with the lender's compounding frequency (CF) to provide the 'real' rate of interest during your term. Even at the industry standard semi-annual CF, the EAR is slightly more than the contract rate (e.g. a 5.0% 5-year fixed rate is a 5.06% EAR). The CF is listed in a mortgage commitment, but the EAR isn't. Increasing the compounding frequency to monthly or weekly will increase the EAR.

Read more: Can you spot the hidden cost in your mortgage?

Equity
The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.

Equity-based Mortgage
Qualifying for a mortgage loan based on the value of the property and its potential marketability, instead of using traditional income, credit and other property criteria for qualification. Typically, those who acquire this type of mortgage have credit challenges or are unable to provide a traditional source of income.

Read more: Equity Based Mortgages.

Extended Amortization
An amortization period that is longer than what is considered to be industry standard (currently 25 years). Up to 30 years may be available in some circumstances.

F

First Mortgage
A debt registered against a property that has first call on that property.

First Time Home Buyer
Someone who is buying a property for the first time, or who has not owned a property for a length of time, as outlined by federal requirements. This type of buyer may be able to access to federal programs, credits and rebates designed to support their entering into the real-estate market.

Fixed-Rate Mortgage
A mortgage for which the interest is set for the term of the mortgage, which also provides set payments and a known amount that will be paid off of principal for the mortgage term selected.

G

Gross Debt Service Ratio (GDS)
One of the calculations used by lenders to determine a borrower’s capacity to repay a mortgage (the second one being Total Debt Service). Add your current mortgage payment, property taxes, approximate heating costs, and 50% of any maintenance fees, and divide this sum by your gross monthly income. Ratios up to 39% are currently considered acceptable.

Guarantor
A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not.

H

High-Ratio Mortgage
A mortgage that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured by CMHC (Canadian Mortgage and Housing Corporation), Canada Guaranty or Sagen (formerly Genworth). See CMHC’s website for a breakdown of their premiums.

Home Equity Line of Credit (HELOC)
A revolving line of credit that allows you to borrow against the equity in your home, typically at a much lower interest rate than a traditional line of credit (or other forms of credit, such as a credit card). Interest is paid monthly on the amount withdrawn, and you have flexibility in repaying the amount borrowed (which is in addition to your monthly mortgage payments). A HELOC may allow you to borrow up to 80% of the purchase price or appraised market value of the property if combined with your existing mortgage, or up to 65% if a 'stand alone' line of credit.

HVAC System
HVAC (Heating, Ventilation and Air Conditioning) refers to the 'beating heart' of a home — the complete system made up of individual components that circulate air flow to heat or cool, and exchange indoor and outdoor air. It's important to periodically inspect, repair and maintain proper functioning and efficiency of this system to reduce utility bills, improve air quality and ensure health and safety.

I

Interest Adjustment Date (IAD)
The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for the days from the closing date to the first of the month are usually paid as part of your mortgage closing costs. Closing a mortgage agreement towards the end of the month will reduce the amount of this particular cost.

Interest-Only Mortgage
A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since one is not paying down the principal. Interest-Only Mortgages are only available in Canada, in the form of a Line of Credit.

Interest Compounding Frequency (CF)
The CF is how often interest is added to your mortgage balance. Semi-annual compounding frequency is the industry standard and federally-set for fixed-rate mortgages.

Variable-rate mortgages, however, can be compounded according to lender discretion. These mortgages have two product types: floating and static payments. Floating payments (ARMs) are typically compounded semi-annually. Mortgages with static payments (VRMs), which have a floating amortization instead of payments, are offered by big banks and some online-only mortgage companies. These lenders may use monthly or weekly compounding, which increases the EAR (effective annual rate) or 'real' interest rate more than the client may be aware of when first offered their contract rate.

Insured Mortgage
An insured mortgage, also referred to as a high-ratio mortgage, is one in which the purchaser has a down payment of less than 20% of the purchase price of a home or property, for a Loan-to-Value (LTV) greater than 80%. This size of down payment means that the mortgage must legally carry mortgage default insurance.

This type of insurance protects the lender against a borrower's potential default on the mortgage loan, and comes with premiums. However, the insurance also allows lenders to offer mortgages to home buyers with lower down payments, while covering their risk exposure.

L

Loan-to-Value (LTV)
The Loan-to-Value ratio is calculated as the mortgage balance divided by the home's value (usually the purchase price unless a recent appraisal has been obtained).

A lender often uses the LTV to assess a mortgage loan for assessing the risk of a mortgage to the lender and for the amount of home equity held by the borrower for purposes of default insurance requirements, obtaining a Home Equity Line of Credit (HELOC), or refinance or renewal options.

M

Mortgage
A mortgage is a legal agreement by which a bank or other creditor lends money at interest to allow someone to buy a home or property. This loan agreement is secured by the title of the borrower's property, which is transferred to the purchaser once the loan is paid in full. At that point, the lender provides a discharge for the mortgage.

Mortgagee
The financial institution (lender) who is lending the money in the form of a mortgage agreement.

Mortgagor
The person borrowing money through a mortgage agreement.

Mortgage Approval
The three stages of mortgage approval are:

1. Pre-approval. A conditional commitment from a lender that gives you a solid idea of what house price you can shop for and often comes with a rate hold (up to 120 days, depending on the lender). A pre-approval does not guarantee approval from a lender. When you place a purchase offer on a home, it is highly recommended to include a 'financing condition' that allows time to receive full, unconditional approval from the lender.

2. Conditional approval. Once your purchase offer has been accepted, conditional approval is the first nod from a lender after an initial review of your documents and details and a signal that you can move to resolve other conditions of purchase, such as a home inspection.

3. Unconditional mortgage approval. The final stage of your mortgage approval process, 'unconditional approval' is provided by the lender once it has reviewed all documentation and details to allow your loan to proceed. At this stage, the financing condition on your purchase offer can be waived.

Read more: First-Time Home Buyer's Guide

Mortgage Default Insurance
Default insurance is provided by three companies in Canada: CMHC (Canadian Mortgage and Housing Corporation) a Crown corporation, and two private companies: Canada Guaranty and Sagen (formerly Genworth).

This insurance is automatically applied to mortgages with less than 20% down payment of the home purchase price (Loan-to-Value of less than 80%) and protects the lender from potential borrower default on the mortgage loan. It is applied through premiums that can be paid in a lump sum immediately after the mortgage is advanced, or added to monthly payments.

Mortgage Position
Mortgage position refers to the priority or rank of a mortgage charge on the home's title relative to other claims or liens against the property. The first mortgage position has the highest priority, meaning it will be paid out first in the event of a sale or foreclosure. Subsequent mortgages (e.g. second, third) will only receive payment after the first mortgage has been fully paid out.

The position of a mortgage is important because it affects the risk associated with the loan. Lenders in a lower position (e.g., second mortgage) face greater risk, which often results in higher interest rates compared to first mortgages.

Mortgage Rate
The interest rate at which a mortgage term is charged. An amount of interest cost is added to an amount that is applied towards the principal for regular payments, typically once a month. A fixed rate is a mortgage interest rate that remains the same through out a specified mortgage term. A variable rate is tied to the Prime rate, and can move up or down throughout a mortgage term, affecting the mortgage payment amount.

N

No-Conditions Offer
Also referred to as a 'clean' offer, it's an offer made on a home listed for sale that comes without the typical sale conditions that are designed to protect a buyer against certain risks, such as financial and legal exposure.

Negative Amortization
When your mortgage principal balance increases due to failure to cover the interest portion due for your payment. For example, if your mortgage interest due is $500, and only $400 is paid then the difference of $100 would be added to your loan's principal balance.

O

OSFI
Office of the Superintendent of Financial Institutions (OSFI) is an independent Canadian federal government agency that regulates and supervises the banking sector (including over 400 banks, trust and loan companies, and insurance companies). OSFI's oversight is considered to be a major factor contributing to the Canadian banking system being one of the safest (if not the safest) in the world.

Read more: Will Mortgage Rules Change?

Open Mortgage
A variable-rate mortgage product that can be repaid at any time during the term, typically without restrictions or penalties (other admin fees may apply). For this convenience, it's usually industry-standard to charge a higher interest rate compared to a closed product. This type of mortgage can be a good option if you're planning to sell your property or pay off the entire mortgage amount in the near future.

Open Bidding
In open bidding, competing offers are placed auction-style, with all potential buyers present and aware of the offers and their values, allowing bidders to increase their offers accordingly within a set time-frame. This 'transparent' bidding system is not presently common in Canada, but is commonly used in other large world markets, such as in Australia.

P

Payment Frequency
How often payments are made to pay off your mortgage loan. Monthly payments are the standard, with Semi-Monthly, Biweekly, Biweekly Accelerated, Weekly and Weekly Accelerated being the other options.

Choosing a different schedule, such as an accelerated one, can significantly reduce interest costs and the mortgage amortization.

Read more: Payment Frequency, Explained

P.I.T.
Principal, Interest, and Property Tax due on a mortgage.

Portable Mortgage
An existing mortgage that can be transferred to a new property. One may want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates available.

Pre-Payment Penalty
A fee charged to a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater amount of either the Interest Rate Differential (IRD) or three months interest.

Prime Rate
The lowest rate a financial institution charges its most creditworthy customers. The federal funds overnight rate serves as the basis for the prime rate that lenders set, and serves as a starting point for many other interest rates.

Read more: How are Mortgage Rates Set?

Principal
The original (and outstanding) amount of a mortgage loan, before interest.

R

Rate Hold
The number of days a lender will guarantee your mortgage rate on a mortgage approval, for a purchase, refinance or renewal. The time a lender will allow a rate hold may vary from 30 to 120 days.

Recast your mortgage
If you pre-pay an amount towards your mortgage principal, a recast feature (that may be included with your pre-payment privileges) allows you to instantly lower your payments rather than having to wait for your renewal. The reduced amortization as a result of your pre-payment is brought back to where it should be (original length minus time served) to recalculate for lower monthly payments.

Our in-house, CHMC-approved lender, THINK Financial, offers this feature for free (no fee to recast).

Read more: Can you recast your mortgage?

Refinance
A mortgage refinance is when you break your current mortgage and start a new one, either with the same lender or a new one. You might refinance your mortgage to take advantage of a lower mortgage rate, access the equity in your home through a line of credit, or to consolidate other high-interest debts into one mortgage payment.

Reinsurance
Insurance for insurance companies: this type of insurance lessens severe losses by sharing the entire loss risk with another insurer.

Renewal
About 120 days (4 months) before your current mortgage term expires, your mortgage is considered 'up for renewal.' You may receive a renewal offer early, or at most, lenders are legally required to provide your renewal offer 21 days before your term expiration date.

At renewal, your mortgage will need to be either paid out entirely, or renewed (re-signed) again for another term. Before re-signing, your mortgage may be open for pre-payment in part or in full, and may be renewed with your current lender or your mortgage can be transferred to another lender.

Restricted Mortgage
A mortgage that does not allow pre-payment privileges, or that has restrictive conditions that make it more expensive or difficult to discharge the mortgage before maturity. Because of a lender's lower costs in offering this type of mortgage, it often comes with lower rates.

Read more: Watch Out For Mortgage Traps

S

Second Mortgage
A debt registered against a property that is secured by a second charge on the property.

Read more: Renewal and Transfers

Standard Mortgage Charge
A type of mortgage registration on the home's title for the actual mortgage loan amount vs. a collateral charge that can be for up to 125% of the home's value. A standard charge allows you to switch to another lender at renewal time for more competitive rates and without incurring legal fees (or they may be covered by the new lender). However, if you want to add a home equity line of credit (HELOC), a second-position mortgage or a refinance could incur penalties and fees.

Stress-Test
A mortgage stress-test is rate set by the federal government that determines how much you can borrow and still make your mortgage payments if rates go up. For the latest rule and comparison scenarios read our blog: Mortgage Stress Test: What is it and how does it work?

Switch
To transfer an existing mortgage from one financial institution to another. Depending on your current mortgage contract, we may be able to arrange this switch at no cost to you. If a transfer occurs before the end of your current mortgage term, there may be pre-payment penalties involved.

T

Term
A mortgage term is the period of time a current financing agreement covers (not the same as amortization, which is the overall length it will take to pay off the mortgage). Terms available are: 6 month, 1 ,2 ,3 ,4 ,5 ,6 ,7, or 10 years. Your interest rate type, either fixed or variable, is set for the length of that mortgage term.

Unless you pay out your mortgage entirely after your first term expires, you'll need to renew again for another term, a process which continues until maturity, when the loan is paid in full. Need to break your term early? Pre-payment penalties may apply.

Read more: How to Get Out of a Mortgage

Total Debt Service (TDS) Ratio
The second calculation lenders use to determine a borrower's capacity to repay a mortgage (along with your Gross Debt Service ratio). Add your current monthly mortgage payments, property taxes, approximate heating costs, 50% of any maintenance fees, and any other monthly obligations (e.g. personal loans, car payments, lines of credit, credit card debts, or other mortgages), and divide this sum by your gross monthly income. Ratios up to 44% are currently acceptable, depending on the lender.

Trigger Rate
For your static-payment Variable-Rate Mortgage (VRM) versus a floating payment product (ARM), the trigger rate is the rate at which your payment amount no longer covers the interest cost. You'll likely be asked by the lender (or you should ask) to increase your payment, pay a lump sum or switch to a fixed rate. With no action, your amortization will continue to lengthen (no amount is going to your principal), and any unpaid interest costs are added to your mortgage balance.

The trigger rate is different for every mortgage and depends on the loan balance and interest rate, and it can frequently change during your term.

Trigger Point
The Trigger Point for a Variable-Rate Mortgage (VRM) is when your mortgage balance has increased to or past the point of the amount you borrowed in relation to the home's Fair Market Value (FMV) as determined by the lender. The lender will contact you to make a change, such as higher payments, pay a lump sum or switch to a fixed rate.

For an insured VRM (less than 20% down payment), the amount owed for interest and principal can't exceed 105% of the home's FMV. The amount owed for a conventional mortgage (20% or more down payment) can't exceed 80% of the home's FMV.

U

Unconditional Mortgage Approval
The final stage of your mortgage approval process, 'unconditional approval' is provided by the lender once it has reviewed all documentation and details to allow your loan to proceed. At this stage, the financing condition on your purchase offer can be waived.

Read more: First-Time Home Buyer's Guide

V

Variable Rate Mortgage (Closed)
A variable rate mortgage (closed) is a mortgage product based on a variable (floating) interest rate. This type of mortgage, usually offered for a 5-year term, means that your monthly interest costs will change along with fluctuations in the lender's prime rate (tied to the Bank of Canada's trendsetting overnight rate). An open variable rate mortgage offers more flexible terms than a closed one.

There are two types of closed variable rate mortgages. An Adjustable-Rate Mortgage (ARM) is a variable rate product that features changing payments so that the amount going to your mortgage principal remains the same. A Variable-Rate Mortgage (VRM) has fixed payments during your term, but the interest portion of your payment will increase or decrease, affecting the amount going to principal and your amortization. A VRM typically comes with a trigger rate or trigger point in case your variable rate increases to the point that your payment is only covering the interest.

Variable-Rate Mortgage (VRM)
A VRM is a type of variable interest rate product where the payment amount is fixed during the term, even though the interest portion of the payment will increase or decrease along with fluctuations in the lender's prime rate. This variable product is offered by Big Banks, and differs in payment structure from an Adjustable Rate Mortgage (ARM).

The VRM often has a trigger rate or trigger point (depending on lender or product features) in case the prime rate increases to a point where the mortgage payment doesn't cover the interest or if the amortization extends beyond its original length. If this trigger is reached during your term, the lender will set out options to increase your payments or add interest amounts to your principal (see your lender for specific details).

Vendor Take Back (VTB) Mortgage
A mortgage provided by the vendor (seller) to the buyer for some portion of the sale price of the home or property. In this case, the seller retains some equity in the home and continues to own a percentage equal to the amount of the loan until this mortgage is paid in full