Mortgage Blog
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Trigger Rates
February 8, 2023 | Posted by: Christopher Chanakos
If you're in a variable rate mortgage with static payments and you have never heard of trigger rates or, if you have received notice from your lender regarding your variable rate mortgage, please reach out. In addition, if your mortgage is coming up for renewal within the next year, it's a good time to start discussing your renewal with a mortgage broker. There are a myriad of solutions out there that your lender may not offer and mortgage brokers have access to them. According to data from National Bank of Canada, up to 80% of variable-rate borrowers that have a fixed payment have hit their trigger rate In a National Bank Financial report released last week, economists Stefane Marion and Daren King have estimated that between 73% and 80% of variable-rate mortgage holders with fixed payments have hit their trigger rate, depending on when the mortgage was originated between 2020 and 2022.
A Trigger Point is when the outstanding principal amount (including any deferred interest) exceeds the original principal amount. It's most likely to happen first to variable rate mortgages arranged between the Spring of 2020 and early March 2022 when the Prime Rate was only 2.45%.
A Trigger Rate is the interest rate level where your lender can adjust your payment amount, even though it's normally fixed. The trigger rate applies to variable-rate mortgage holders that are on a fixed payment schedule.
And the typical options for borrowers are to increase their monthly payment, do nothing and not make any payments towards reducing their principal, make a lump-sum payment to reduce their monthly payment, etc..
But if they choose to do nothing, then at that point, their amortization will be back to the original schedule (i.e. higher monthly costs) with their payment being adjusted to reflect the remaining amortization.
There are solutions available so talk to your mortgage broker sooner ratrher than later.