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What's a Trigger Rate

Updated: Jan 11, 2023




Are you on a variable-rate mortgage? If so, it's important to understand what a trigger rate is and how it could potentially affect your mortgage payments.

First, let's define what a trigger rate is. A trigger rate is a specific interest rate that, if reached or exceeded, can result in changes to the terms of a variable-rate mortgage. For example, if the trigger rate is set at a certain percentage and the interest rate on the mortgage goes above that percentage, the borrower may be required to start making larger payments or switch to a fixed-rate mortgage.


There are two types of variable rate mortgages: the variable rate mortgage and the adjusted rate mortgage. With a variable rate mortgage, the borrower pays the same monthly payment every month. However, as the interest rate increases, the amount of principal being paid down decreases. This can be problematic if the interest rate rises significantly, as the borrower may end up paying more in interest and making little progress towards paying off the principal balance of the mortgage.


On the other hand, with an adjusted-rate mortgage, the monthly payment increases along with the interest rate. This means that as the interest rate goes up, so does the borrower's payment. While this may result in higher monthly payments, it also means that the borrower is paying down more of the principal balance each month.

So why is it important to understand your trigger rate? If you have an available rate mortgage and the interest rate goes above your trigger rate, you may be required to start making larger payments or switch to a fixed-rate mortgage. This can be a significant financial burden, particularly if you are on a tight budget or have other debts to pay.


It's important to carefully consider which type of mortgage is right for you and to fully understand the terms of your mortgage agreement. If you are considering a variable-rate mortgage, it's a good idea to speak with a mortgage broker or financial advisor to get a better understanding of the potential risks and benefits.


If you already have a variable-rate mortgage, it's important to keep an eye on the interest rate and be aware of what your trigger rate is. If you are unsure of your trigger rate, it may be a good idea to review your mortgage documents or speak with your lender or mortgage broker.


It's also worth noting that the Bank of Canada has the authority to set the interest rate for mortgages and other forms of borrowing. The Bank of Canada has indicated that it may adjust the interest rate in the coming months, which could potentially impact your mortgage payments. If you are on a variable-rate mortgage, it's important to stay informed about any changes to the interest rate and how they may affect your payments.


In summary, it's important for borrowers with a variable rate mortgage to understand what their trigger rate is and how it could potentially affect their mortgage payments. If you are unsure of your trigger rate or have any other questions about your mortgage, it's a good idea to speak with a mortgage broker or financial advisor. Stay informed about any changes to the interest rate and be prepared to adjust your budget accordingly to ensure that you can continue to make your mortgage payments.

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