30 June 2022

What Is Trigger Rate And When It Comes Into Play?


If you are in a variable rate mortgage and not an adjustable one, then you must pay close attention to this post.

First let us differentiate between variable and adjustable rate mortgage. “Adjustable Rate Mortgage” is the one where your payment increases as the interest rates go up (with recent hikes in overnight rates by bank of Canada to tackle inflation). Whereas, in a “Variable Rate Mortgage” your mortgage payment does not change, i.e. it stays static, does not matter if the interest rate goes up (that actually is not the case if the rates go really high, huge increases in interest rates is when trigger rate comes into play).

With every increase in the interest rates, people with variable rate mortgages are paying more interest and less principal. With more rate hikes going forward, there will be a time when your mortgage payment will be interest only and no principal at all. And if that interest rate only part exceeds your monthly payment at some point of time, then your amortization will be infinity, and you will be hit with the trigger rate.

This raises a question that how will that be applied? There could be an additional payment that you will pay monthly along with your existing mortgage payment or a lump sum payment, it is for your lender to decide.

As a general rule of thumb, prime normally has to rise 2% or more before you get hit by trigger rate.

So, plan ahead and be ready for the change.

Contact me for more info:
📞 (647) 323-5310
📧 bhupinder.singh2@century21.ca

If you’re thinking of SELLING, BUYING, BUILDING, or INVESTING in London or the surrounding area, contact me.
Bhupinder Singh
Realtor® Salesperson
“Client Focused, Results Oriented”
Century 21 First Canadian Corp.