If you have a variable mortgage, you have likely been impacted by the recent interest rate increases. While an increased interest rate will not raise your payment amount, it may push you closer to your trigger rate. Your trigger rate is the point at which your regular payment is no longer sufficient to pay off the interest you have accrued since your last payment. This point is reached if your entire mortgage payment is going toward interest and none of it is going to your principal balance. To keep your payment schedule on track, your lender may contact you to increase your payments or review other options. As a leading provider of lending solutions, the team at PHL Capital Corp knows how important it is to understand your trigger rate. That is why we have put together some information to help you understand what a mortgage trigger rate is and what happens if you reach it.
If you reach your trigger rate, you will be presented with several options to remedy the situation. These options can include:
The simplest and most common option when reaching your trigger rate is to increase your monthly payments. This increase can vary based on the amount of interest you are paying, but you will need to cover your interest payments while leaving some room to pay down the principal amount. Your lender or a mortgage professional can work with you to determine which payment amount is best for your needs and budget.
If you have some money in savings, making a lump-sum payment may be a suitable option. This payment will lower your mortgage balance while paying off outstanding interest, but it will likely only be a temporary solution if you do not increase your payments.
Most lenders allow borrowers to switch from a variable mortgage to a fixed-rate mortgage at any time. Some even allow this switch to be performed without any fees. Fixed mortgages typically feature higher interest rates and payments than variable mortgages, but the payment will not increase for the duration of the term and will help you avoid any unwanted surprises.
In combination with raising your regular monthly payments, you may be able to extend your amortization period to keep your payments manageable and in line with your budget. It should be noted that a longer amortization period means that you will be paying more interest over time. Refinancing in this manner may also incur financial penalties, so it is important to work with your lender to determine if this option makes sense.
To learn more about our lending solutions, get in touch with the team at PHL Capital Corp. We can be reached by phone at 604-579-0847 and will be happy to answer any questions you may have regarding mortgages or our application process.