How will the trigger rate impact you? The trigger rate is when the homeowner is no longer paying sufficient interest on their mortgage. The lenders may require the homeowner to choose from some options to correct the situation. The next step is the trigger point and that is when the lender will require action
According to the Bank of Canada in a recent Global News 50% of homeowners with a mortgage have already hit their trigger rate. How will the trigger rate impact you?
It is very important to discuss these options with your independent mortgage broker before making a change to your mortgage regardless of which lender currently holds your mortgage.
These options come with pros and cons.
Option 1 – lock into a fixed term rate. This option is ideal for the lenders and the first option they will give to you. With higher rates they are very happy if you lock in for 3-5 years or longer to secure that business. In 1-2 years if rates adjust and you want to exit the mortgage contract they will could collect a penalty amount which in some cases can be significant.
Don’t lock into a fixed term mortgage until you are clear how this will impact you now and moving forward.
Option 2 – increase your existing payments and stay in the variable mortgage. If you have the income to increase your payments this may be an option. You don’t lock into anything and you keep a nice balance between your principle and interest payments.
Option 3 – make a lump sum payment on the mortgage and adjust the payments. This could reduce your mortgage balance and allow you to keep the same payments or lower them depending on the remaining amortization on your mortgage.
There are other strategies that may be a fit for you. Reach out to me to discuss what options may be the right fit for you and to learn how will the trigger rate impact you.