Triggered in Canada
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Variable-rate mortgages with fixed payments:
In Canada, about three-quarters of variable-rate mortgages have fixed payments.1 For these specific mortgages, when interest rates move, the amount of the mortgage payment does not change, but the portion going toward interest (rather than principal) is adjusted. But if interest rates increase substantially, these mortgage borrowers may reach a point where their fixed payments cover only interest and not any principal. The interest rate at which this happens is known as the trigger rate. If rates rise above the trigger rate, borrowers may then need to increase their mortgage payment to cover the additional amount of interest. For some households, this payment increase may be unexpected.
Canadian lenders take different approaches for borrowers who reach their trigger rate.
Some lenders will automatically increase the mortgage payment so that it continues to cover the interest portion of the payment. With this approach, if interest rates rise further in subsequent months, the payment will also need to increase to cover the larger interest payment (similar to a variable-rate mortgage with variable payments).
Other lenders allow for negative amortization, where the interest payment is permitted to exceed the total mortgage payment. Principal payments are therefore negative, so the balance owed on the mortgage increases from month to month.
Some lenders contact borrowers before they reach their trigger rate and offer options such as:
switching to a fixed-rate mortgage
making a lump-sum paymenthttps://globalnews.ca/news/9297311/trigger-rate-mortgages-bank-of-canada/?utm_source=notification
The Bank of Canada notes that three quarters of variable-rate mortgages are on fixed payments, meaning these households typically pay the same amount on their mortgage monthly when rates change. What is different as rates rise then, is that more of the payment covers interest rather than the principal loan amount.
"Now look here, you Baltic gas passer... " - Mik, 6/14/08
The saying, "Lite is just one damn thing after another," is a gross understatement. The damn things overlap.
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It‘s quite an impressive financial feat that most US mortgages are on fixed interest rates, even those that have 30 year terms. Not many other countries have managed to do this.
@Axtremus said in Triggered in Canada:
It‘s quite an impressive financial feat that most US mortgages are on fixed interest rates, even those that have 30 year terms. Not many other countries have managed to do this.
It makes you wonder how much money the banks in other countries are making out of their borrowers in comparison.
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Variable-rate mortgages with fixed payments:
In Canada, about three-quarters of variable-rate mortgages have fixed payments.1 For these specific mortgages, when interest rates move, the amount of the mortgage payment does not change, but the portion going toward interest (rather than principal) is adjusted. But if interest rates increase substantially, these mortgage borrowers may reach a point where their fixed payments cover only interest and not any principal. The interest rate at which this happens is known as the trigger rate. If rates rise above the trigger rate, borrowers may then need to increase their mortgage payment to cover the additional amount of interest. For some households, this payment increase may be unexpected.
Canadian lenders take different approaches for borrowers who reach their trigger rate.
Some lenders will automatically increase the mortgage payment so that it continues to cover the interest portion of the payment. With this approach, if interest rates rise further in subsequent months, the payment will also need to increase to cover the larger interest payment (similar to a variable-rate mortgage with variable payments).
Other lenders allow for negative amortization, where the interest payment is permitted to exceed the total mortgage payment. Principal payments are therefore negative, so the balance owed on the mortgage increases from month to month.
Some lenders contact borrowers before they reach their trigger rate and offer options such as:
switching to a fixed-rate mortgage
making a lump-sum paymenthttps://globalnews.ca/news/9297311/trigger-rate-mortgages-bank-of-canada/?utm_source=notification
The Bank of Canada notes that three quarters of variable-rate mortgages are on fixed payments, meaning these households typically pay the same amount on their mortgage monthly when rates change. What is different as rates rise then, is that more of the payment covers interest rather than the principal loan amount.
Variable rates are great when interest rates are low and/or dropping. I was able to pay off the 25 year amortized mortgage on my current house in 11 years thanks in part to holding a fixed payment variable rate mortgage. The bulk of my monthly payments went against the principal because interest rates were steadily falling during the years I was making payments.
Just for the record mortgages on principal residences in Canada are not tax deductable. Nor are municipal property taxes for that matter.
