Your trigger rate is likely to be hidden if you have fixed payments on your variable-rate mortgage. What is your trigger rate for VRM products? This rate is different for each mortgage and may have changed. This is how to find it and what it means about your payments. Nobody was worried about the Trigger Rate of their VRM product (Variable rate mortgage) a year ago. Your static payments no longer cover the entire interest amount at your trigger rates. Your principal is not affected, and deferred interest will be added to your mortgage. The lender will then contact you to increase your payment, among other options.

Knowing your trigger rate can be illuminating for many reasons:

Learn how static payments work to reduce your mortgage.If you exceed your trigger rate, have a plan, and the lender will contact you with options.Be proactive and adjust your trigger rate to preserve your variable-rate savings.

Let's discuss in detail WHY you should know your trigger rate.

What does a trigger rate mean for your payments?

Your VRM's static payment will determine your monthly payments. These amounts are established at the start of your term. Your variable contract rate (including lender discounts) and amortization schedule determine the interest and principal portion. Variable rates rise, and so does your interest, with less going toward the principal. As you can see, your principal payment is decreasing well before you reach your trigger rate. The trigger rate is the last gasp in your payment. It no longer applies to your mortgage terms. Your entire payment has been consumed by the interest.

What is your trigger rate?

Each client who has a VRM product will have their own unique trigger rate, which is based on the terms of their mortgage. Each bank calculates trigger rates in a different way. If you lock in before variable rates reach rock bottom, it's more likely that your trigger rate will be hit sooner. This was prior to the Bank of Canada starting its most recent rate-hike cycle. One of the six major banks recently predicted that approximately 80,000 of its variable rate mortgage clients would reach their trigger after the next "couple" of Bank of Canada rate increases ( Stueve Huebl August 24, 2022).

The Trigger Rate you should have in your mortgage contract at the start of your term. Are you a principal, and have you made any prepayments? The trigger rate could have changed if you have. It is a good idea to check your current trigger rates, especially when rates rise. There are many calculators and calculations available, but it is best to speak to your The Mortgage Specialist broker. We will assist you in determining your trigger based on your product and lender. Then we'll offer you tailored options and advice based on rising rates. If you feel that your amortization has been increasing too quickly due to recent rate increases, it is time to look at your options and create a plan to maintain your mortgage savings.

Your trigger rate options  do you have a plan?

When you know about your trigger rate, we can help you plan the best way to proceed. Most likely, your lender will offer you the following options:

Your payment can be increasedTo make your current payment viable again, pay a lump sum.Change to a fixed rate (again, higher payments)

We will run your budget and mortgage numbers so you can choose the best action for your situation.

What happens if you do not trigger action and reach your trigger?

The trigger point of a Variable Rate Mortgage (VRM) is when your principal mortgage balance exceeds your original loan amount. This can happen if your interest rate is deferred or you don't pay enough. The lender will contact you again to request a change. This could be higher payments, a lump sum, or switching to a fixed rate. There is usually a finite deadline. You can also re-appoint the home to determine its fair market value in relation to your loan percentage. This trigger-point marker can be even more significant than your trigger rate. 

Conclusion 

It may be easy to wait for the lender's contact when your trigger rate is reached, but it's not the best way to save money on your mortgage. Even if your trigger rate is not met, it's still a good idea to know how your static payments could impact your financial and future plans.

Contact us! We are highly qualified with experience and a focus on service to help you navigate (mortgage) roads. You can ride into the sunset and save thousands on your mortgage.

Mortgage Broker Burnaby are available to you no matter where you live in Canada. Give us a call! We will provide 5-star service and make it easy for you to make informed decisions.