What to Do When Your Mortgage Trigger Rate Has Been HIT

ATTENTION HOMEOWNERS! Remember that mortgage contract you signed? Well, there may be this inconspicuous clause in there that’s called the Trigger Rate.

You may have just glanced over it before but it’s surely something you’ll want to reacquaint yourself with now, that is… if you haven’t already gotten a call from your bank.

Most Canadians haven’t faced these trigger rate challenges because very rarely do interest rates increase massively like they have in 2022. We’ve received massive rate hikes one after another this year that these trigger rates now come into question.

If you’ve hit your trigger rate or about to hit it, here’s an outline of your options:

  1. Increase Monthly Payments – This would allow you to be on track with your mortgage’s amortization schedule. The increased amount will vary but this is the simplest solution if you have the means to sustain a higher monthly mortgage payment amount when your trigger rate has been hit.
  2. Lump-Sum Principal Payment – This is for those with liquidity who can afford putting a lump-sum payment on their outstanding mortgage. With the mortgage rates for both variable and fixed at 5%, this is actually a pretty good return on investment with today’s current yield environment.
  3. Interest-Only Payments – If you don’t have readily available funds or the liquidity to do option #1 or #2 above, then the only way you can keep your property is to convert the monthly mortgage payment to an interest-only monthly payment (without having to increase the monthly payment amount). However, this would result in “negative amortization” because interest-only payments mean that you’re not actually paying down your mortgage liability, which leads to your amortization period increasing as opposed to decreasing over time. Mortgagees need to be careful with this option because some banks do not see this in positive light and there may be a point down the line when the bank calls to “mandate” a lump-sum payment.
  4. Sell the Property – If you can’t handle the incremental monthly or lump-sum payment and you don’t want to fork out interest-only payments, then your last resort is to sell your property. 

If you’re finding yourself in that last bucket and would like to explore your sell options, then give us a call as we’ll be able to better guide you through the process and shed some more light on your personal situation.

Be sure to check out the PPTV episode that’s dedicated to talking about about Trigger Rates in depth and what every Toronto Homeowner must know about these rates. The link to the episode can be found below.

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