What's the "trigger point" for a Variable Rate Mortgage?
The recent Bank of Canada rate hikes have some variable-rate mortgage holders wondering if they could be facing a “trigger point” – the point where they have to increase their static monthly mortgage payments. Let’s take a look at what this means and how it could affect you as a borrower.?
If you have a variable-rate mortgage, you most likely make fixed monthly payments which protect your cash flow from fluctuations in the prime rate. A feature of these mortgages is a “trigger rate”, the point at which your interest payments exceed the amount you’re paying towards the mortgage. A trigger rate is designed to ensure homeowners are always building equity. So even though your payments are normally fixed, your lender can adjust your payment amount when you hit your trigger rate.?
Variable rate mortgage holders can exceed their trigger rate until they reach what’s known as a balance called the “Trigger Point”. When this happens, you’ll be required to adjust your payments, make a prepayment, or pay off the mortgage balance.?
领英推荐
Further Bank of Canada rate increases this fall will likely see trigger rate and trigger point come into play for a number of borrowers. Most likely it’ll happen first to variable-rate mortgages arranged between the spring of 2020 and early March 2022, when the prime rate was only 2.45%. The lower your interest rate was, the lower your trigger rate is, and the faster you may hit this point of negative amortization.
The next Bank of Canada overnight rate decision is expected on September 7. If you haven’t already reached the trigger point for your static-payment variable mortgage, you may be affected this fall.
As always please feel free to contact your Capital360 agent for further details and guidance. We’re happy to create the mortgage strategy that works best for you. Call us at 416-346-6779 or [email protected].