What Is the Trigger Rate and what happens when you hit the trigger rate?
If you have a Variable-Rate Mortgage (VRM) with Fixed Payments, Trigger Rate is an important factor that you may want to consider when there is an ongoing increase in overnight rates set by the Bank of Canada.
Although borrowers may not feel any impacts on their VRM | fixed payments under a prime rate increase at the beginning of hikes, things could change if the overnight rates continue to raise. What happens when interest rates increase is that the amount of the mortgage payment does not change, but the portion going towards interest (rather than principal) is adjusted.
When your payments towards interest rate reach a certain point where the Interest Portion of your payment becomes equal to the Total Payment amount, and nothings goes towards the Principal Portion, your mortgage hits your Trigger Rate. This 3-minute video explains what happens upon reaching your Trigger Rate?