Trigger Rates are Here for Some

I’ve spoken to a few different clients who choose a variable rate mortgage between March 2020 and March 2020, and some their mortgages have hit their trigger points.  Others have not, but will with another rate increase.  

The trigger point happens when the interest rate has risen on a variable rate mortgage and the static payment now doesn't cover the required interest.  

It seemed so far-fetched a few short months ago that we would approach these rates in 2022, but here we are.  

For most variable rate borrowers that have hit their trigger points, their bank will automatically increase their payments in order to cover the interest deficiency in their payment.  

These borrowers are now not paying any money towards their principal.  They may also consider putting a lump sum payment or increase their mortgage payments further in order to pay down their mortgage.  When rates go back down, they will resume paying down their principal.   

Another option, would be to convert their variable rate mortgage to a fixed rate.  Considering shorter term mortgages (1, 2 or even 3-year terms) could be a way to get off the variable rate rollercoaster and wait for interest rates to settle down in the coming months/years.