What are Trigger Rates and Trigger Points on a Variable Interest Rate Mortgage? | Mortgage Broker Saskatoon, Saskatchewan

Variable interest rate mortgages are mortgages where the interest rate may change during the term of the mortgage, but your monthly payment remains the same. (An adjustable rate mortgage is where the monthly payments will change when the interest rate changes.)  When your payment stays the same - at times you will pay more off the balance of your mortgage - other times you may pay less, depending on the interest rate.  

When the Bank of Canada makes changes to the prime rate you are effected.  A big part of this is the trigger point and trigger rate on a variable rate mortgage and is the point when the contractual Principal and Interest payment no longer covers the interest on the mortgage.  At that point, the lender will increase the payments to stay within the contractual obligation.  

I recommend that my clients plan ahead and increase their payments right off the bat (if possible) to reduce the risk of running into trouble down the road. The issue with waiting for the lender to do it for you, is by that time they will have to increase your payments so drastically, it may not be affordable any longer.  

Trigger Rate: Occurs when interest rates increase and the principal and interest payment amount no longer covers the interest charged on the mortgage.

Variable Interest Rate Mortgages can have an increasing balance (i.e., exceed their trigger rate) until they reach a balance called the Trigger Point.

At renewal time, the minimum payment for the new term is based on the system remaining amortization. 

Options:

• Mortgage must be paid down to the appropriate Trigger Point, or
• The borrower could agree to covert the Mortgage to a fixed interest rate-amortizing Mortgage, or
• Increase the regular payments in order to amortize the Mortgage over the remaining amortization period