What is Trigger Rate?

Most variable-rate mortgages have static monthly payments, which protect the borrower’s cash flow from changes to the Prime Rate. Four of the big six banks offer this, and so do several credit unions.

In normal times, if you had this sort of mortgage, you could reasonably expect your payment would not fluctuate during the five-year term of your mortgage. Thus, your cash flow got the benefit of securing the lowest rate/payment combination at the time you arranged your mortgage.

But these are NOT normal times anymore. In an effort to fight off the ugly effects of inflation, the Bank of Canada announced ten separate rate increases between March 2nd 2022, and July 12th 2023.

As a result, the majority of static payment variable rate mortgage holders found themselves being asked to either increase their regular payment or even make a lump sum payment to restore the balance of their mortgage.

This happens when a mortgage’s Trigger Rate and Trigger Point come into play. Here you will find a complete explanation and discussion of trigger rate and trigger point.

Impact of The Most Recent Bank of Canada Rate Hike

The last Bank of Canada overnight rate increase was 0.25% on July 12, 2023, which resulted in the Prime Rate rising to 7.2%. The Prime Rate has since been adjusted and now stands at 6.95% as of July 2024. Consequently, it is likely that your static payment variable rate mortgage has already hit its “Trigger Rate,” necessitating either higher regular payments or lump sum payments to cover the increased interest.

If you exceed your personal Trigger Rate, to avoid your mortgage balance owing increasing, the bank will notify you. They typically recommend customers increase the mortgage payment or convert to a fixed-rate mortgage to avoid reaching the Trigger Point (defined below). However, not every bank will require an action by the customer (and/or cosigner) at this time. Some will wait to see if your current mortgage balance is now the same as or even greater than the original mortgage balance. As you will see below, this is called your Trigger Point.

What is my Personal Trigger Rate?

Here is a simple calculator which will approximate your personal trigger rate. Ours was the first and only free such calculator in Canada. Please note this is not intended as a basis for financial decisions. It’s best you contact your financial institution to confirm your personal trigger rate. The calculation methodology was generously provided by Frances Hinojosa, Tribe Financial Group.

If you want to understand all your options, please contact us.