With each announcement The Bank of Canada releases, many Canadians are starting to pay more attention to the rate of their mortgage. If you have a variable rate mortgage, you are especially paying close attention to it.
If you have a variable-rate mortgage, you may be approaching your trigger rate. As the numbers are beginning to increase and more announcements are being made, you may be wondering what that means for you and your mortgage.
Look no further! Let’s explore what a trigger rate is, and how it impacts your mortgage.
What is a Trigger Rate?
A trigger rate is essentially an interest rate. When you come close to your trigger rate and interest rates rise, your monthly payment may no longer be sufficient to cover both the principal amount and interest on your mortgage.
If your trigger rate is reached, you will no longer be paying off your mortgage. Instead, you've increased your borrowing, which is known as "negative amortization."
What Does Hitting My Trigger Rate Mean for My Mortgage?
While hitting your trigger rate can seem overwhelming, there is certainly nothing to be worried about. While your trigger rate may not have an immediate impact on your mortgage, especially right away, it will increase the amount owed on your mortgage in the long run.
If your monthly payments to your mortgage no longer adequately repay your debt, your credit score may suffer negative consequences. However, this is entirely dependent on your ability to modify your payments, which can be discussed with your mortgage broker or lender.
I Hit My Trigger Rate: What Are My Options?
As mentioned, hitting your trigger rate doesn’t have to induce panic! There are many options you can choose in order to combat the effects of rising interest rates on your mortgage. Let’s explore them!
1. Increase Your Payments
By increasing your regular mortgage payments, you can avoid owing more on your mortgage. This option will have to be discussed with your lender or bank, where you will be able to discuss the next course of action to help mitigate the impacts of increasing interest rates on your mortgage.
2. One Time Payment
If you are not interested in increasing your monthly payment, consider making a one-time payment that is significant enough to reduce your owing interest.
3. Switch Your Rate
If a variable rate is no longer suiting you and your lifestyle, you may want to consider switching the type of mortgage you have. Speak with your mortgage broker, and see if you are able to switch from a variable rate to a fixed rate. The switch can help you to avoid another trigger rate for at least 5 years.
Extending your amortization is another great option that many choose to embark on. By extending your amortization, you are able to reduce your regular monthly payment and save money on interest. However, it is important to note that this option may not be feasible for everyone and may not help with your trigger rate. Speak to your mortgage broker, and see if extending your amortization is best for you!
Coming up to your trigger rate should not be something that causes you stress! At Arise Mortgage, we will be able to walk you through every step of your borrowing process to ensure there are no surprises.
As interest rates are continuing to rise, you should feel confident that your mortgage is here to help you (not hurt you!).
Get in touch with our team today, and let’s chat about your trigger rate.