Here’s everything you need to know about variable rate mortgages, fixed rate mortgages, and how Canadian homeowners will be impacted by rising interest rates.
But if interest rates continue to rise, interest payments could increase when the trigger rate is surpassed.The “trigger rate” is the interest rate level that, when surpassed, causes a mortgage holder’s monthly payments to change. The trigger rate has been largely ignored for decades, because the last time Canadians had to deal with fast-rising rates was the late 1970s.
Now that interest rates are rising, borrowers are moving closer to their trigger rate – a level at which their regular monthly payments will not be enough to cover the interest for the period. The exact triggering rate is different for every mortgage holder and depends on the size of their loan, the amount of their monthly payment, the interest rate of the mortgage and length of the amortization period.It is not possible to switch from a fixed to variable rate without breaking the mortgage contract .
However, it is possible to go the other way. You can lock a variable rate mortgage into a fixed rate one at any time, without breaking the mortgage contract – and if you break the contract with a variable rate, the penalty is often much lower.The answer usually boils down to the state of a homeowner’s finances.
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