We have had a lot of questions on how it affects your variable-rate mortgage.
It is important to remember that with most institutions the payment amount does not change with each interest hike, but the breakdown in the amount of the payment that goes to principle and interest will change. That is, until you reach the breakeven rate or triggering interest rate.
So, what is a trigger rate❓
The trigger rate is the rate at which the regular mortgage payments no longer covers the accrued interest. Interest rates for the variable rate has increased so much that the entire payment is dedicated towards the interest and nothing towards the principal. If rates continue to increase anymore, the payments no longer cover the interest With two more hikes coming for this year, October 26th and December 7th its important to prepare now as this breakeven/trigger rate will become a reality for a lot of mortgage holders
These three options are
1. Adjust your payment - Increase the amount of the principal and interest payment to an amount that is enough to pay off the outstanding principal balance within the remaining original amortization period.
2. Make a prepayment - The trigger is dependent on the remaining balance of your mortgage. If you make a lump sum payment, that would push your trigger rate higher. Alternatively, you could increase your monthly payments, so more money is going toward your principal.
3. Switch to a fixed-rate mortgage - Your lender may suggest that you switch to a fixed-rate mortgage. By doing this, you'll lock in at current rates. While this strategy may give you peace of mind, it could cost you more in the long run. Plus, your monthly payments would increase by more than if you were to adjust your payments on your own (reach out to me before doing this).
The ''letter in the mail'' will be coming for alot of us.
Be prepared and proactive, budget accordingly.
Bank of Canada Rate hikes, your variable rate mortgage and the triggering interest rate.
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