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 has announced eight separate rate increases between March 2nd 2022 and January 25th 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 balance 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.

The most recent Bank of Canada overnight rate announcement on January 25th 2023 resulted in another 0.25% increase to the Prime Rate, which now stands at 6.70%; and it is pretty likely your static payment variable rate mortgage has already hit its own “Trigger Rate.”

Impact of The Most Recent Bank of Canada Rate Hike

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.

When interest rates increase to the point that regular principal and interest payment no longer covers the interest charged, interest is deferred, and the principal balance (total cost) can increase until it hits the Trigger Point.

Trigger Point is when the outstanding principal amount (including any deferred interest) exceeds the original principal amount.

The lower the Prime Rate was at the time you arranged your variable rate mortgage, the more inevitable it is you wll hit your Trigger Rate and head towards your Trigger Point.

In particular, most vulnerable are variable rate mortgages arranged between the Spring of 2020 and early March 2022 when the Prime Rate was only 2.45%.

Today, at the end of January, 2023, the Prime Rate is now 6.7%. A staggering increase of 4.25% in ten short months.

The longer your amortization period, the lower will be your mortgage’s Trigger Rate.