Knowing Your Trigger Rateand Trigger Point

Are you a homeowner in the Niagara Region with a variable-rate mortgage?

If so, you’ve probably heard of the impact that trigger rates and trigger points are having on homeowners across the country.

As the Bank of Canada continues to raise interest rates in Canada, it’s become increasingly important for homeowners with variable-rate mortgages to be aware of their trigger rate and point.

What Are Trigger Rates and Points?

When your interest rate increases, you start to put less of your regular mortgage payment towards the principal and more towards the interest you now owe.

If your interest rate increases enough, you might not be putting any of your regular mortgage payment towards the principal at all – in effect, you’re moving backwards. 

Your trigger rate is therefore the point at which your regular payment starts to be dedicated solely to paying off interest, with none of it going towards the principal amount.

Your trigger point is when the outstanding principal amount actually surmounts the original principal amount.

Nobody wants to be in this situation and that’s why we need to be aware of our trigger rates and points. 

So Who Is Affected By This?

If you have a fixed-rate mortgage, that is, a mortgage with a specific interest rate for the entire length of your loan, then you need not worry about it.

Similarly, if you have an adjustable-rate mortgage, trigger rates and points do not apply to you because your regular mortgage payment will change as interest rates change.

When you have a variable-rate mortgage, your payment typically stays the same even when your interest rate rises – this is why your regular payment could in effect just go towards your interest rather than your principal.

I Have A Variable-Rate Mortgage – What Do I Do?

If the rising interest rates are putting you in a situation where your monthly payments are going towards your interest rather than your principal, you have options.

You can adjust your payment so that you contribute more each month towards your principal than you do towards your interest.

If your lender allows for it, you might be able to switch to a fixed-rate mortgage so that your rate stays the same – the caveat is that this could potentially be more costly in the long run and would increase your regular payments as well.

If you have access to additional money, you could pay a lump sum to reduce the overall debt amount.

How Can I Help?

If you’ve hit your trigger rate or point, a mortgage broker can help facilitate the necessary steps to help put you in a better financial position.

Whether that means switching to a fixed-rate mortgage with your current lender internally or finding a new lender externally, we can go over all of your options.

We can change your payment so that you’re not just putting all of it, or more of it, towards the interest instead of the principal.

If you have any questions regarding trigger rates or points, or anything relating to mortgages, feel free to give me a call and I’ll gladly help wherever I can.

Kevin Ashcroft,

Mortgage Broker