You have likely heard - or will soon be hearing - a lot of talk about "trigger rates" and "trigger points".
If you have a Variable Rate Mortgage with a Major Bank, this could affect you. Not sure? Let's start with a few definitions:
- Variable Rate Mortgage (VRM) - prime changes, rate changes. When interest rates change, typically, your mortgage payment will stay the same.
- Adjustable Rate Mortgage (ARM) - prime changes, rate changes. Unlike variable rate, your mortgage payment will change when interest rates change.
- Trigger Rate - When interest rates increase to the point that regular principal and interest payments no longer cover the interest charged, interest is deferred, and the principal balance (total cost) can increase until it hits the trigger point.
- Trigger Point - When the outstanding principal amount (including any deferred interest) exceeds the original principal amount. Borrowers will be notified and informed of how much the principal amount exceeds the excess amount (Trigger Point). The borrower typically has 30 days to make a lumpsum payment, increase the amount of the principal and interest payment, or convert to a fixed rate term.
The Bank of Canada has two more rate announcements planned for 2022; Oct 26 and Dec 7.
Inflation finally trended downward slightly to 7.6% in July, and to 7.0% in August (less than the 7.3% which was predicted) but we are a long way from the target of 2%. We expect another rate increase in Sept, and this will start to create Trigger Rates and Trigger Points for certain Variable Rate Mortgage holders.
If you'd like to review what all of this could mean for you or anyone you know, reach out for a FREE consultation. Jenn Price-Locke is local, easily accessible and always happy to help.
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