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How To Reduce Payment Shock When It's Time To Renew

By now, variable rate mortgage holders should be familiar with the term "trigger points" due to the increase in interest rates so far this year.

The trigger point is when a variable-rate mortgage holder with fixed payments are no long paying down the principal, as the entirety of their payment is now going towards interest.

Lenders will usually reach out to affected borrowers to set up an increase in their monthly payments.

As rates continue to rise, so have amortization periods for variable-rate mortgage holders with fixed payments. This is because payments for the mortgage balance are being paid down much slower. This will be until it's time to renew, at which the mortgage may be at a higher rate with higher payments to bring the amortization back to the maximum number of years permitted.

Benefits of making mortgage prepayments

Instead of waiting for your mortgage to renew, you have the option to increase your payments in advance to reduce the impact during renewal time.

Choosing to make additional payments to your mortgage (which will go directly towards your outstanding balance) can have a long-term impact and also potentially reduce your amortization by years! This is just like how compounding interest can play a huge part in growing your savings.

For those that have a fixed-rate mortgage, this option can also be considered to try to reduce payments at renewal time.

Reach out to us!

If you'd like to learn more about the benefits of making prepayments or increasing your monthly payment amount, please reach out to us! We'd be happy to guide you through the math and show you the long-term impact on your mortgage.

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