Understanding Mortgage Trigger Points: How to Take Control of Your Mortgage
Understanding Mortgage Trigger Points: How to Take Control of Your Mortgage
In this blog post, we'll explain what a Trigger Point is and provide guidance on the steps you can take to manage your mortgage effectively.
If you've received an email from your bank about reaching your "Trigger Point" regarding your mortgage, you may be wondering what it means and what actions you should take. In this blog post, we'll explain what a Trigger Point is and provide guidance on the steps you can take to manage your mortgage effectively. Let's dive in!
1: Understanding Trigger Rates vs. Trigger Points - A Quick Explanation
Before we delve into the options available to you, let's briefly clarify the difference between Trigger Rates and Trigger Points. A Trigger Rate refers to the interest rate at which certain changes or adjustments may occur in your mortgage. On the other hand, a Trigger Point is a specific financial threshold related to your mortgage's outstanding balance concerning your home's value. Here is a 1-minute video explaining it more.
2: Hitting Your Trigger Point - What to Do Next
If your mortgage balance has exceeded 80% of your home's appraised value, you've hit your Trigger Point. Here are three options TD (or your bank) may outline for you, along with our recommendations:
Option #1: "Make a lump sum payment against your outstanding balance."
To stay below your Trigger Point for at least three months (or even just one month), consider making a lump sum payment. Get in touch with your bank to inquire about the minimum amount required. Remember, this option allows you to defer making lump sum payments repeatedly as long as your mortgage amount remains below 80% of your home's appraised value when you initially got approved.
Option #2: "Increase your principal and interest payments."
If you opt for Option #1 and make a lump sum payment, you may not need to choose this step. Increasing your monthly mortgage payments may be harder to reverse, so consider this option only if you prefer not to make frequent lump sum payments for convenience.
Option #3: "Convert your Mortgage to a fixed rate term equal to or greater than the lesser of 3 years or the remainder of your current term."
If you believe that interest rates won't decrease in the near future, choosing this option can provide stability and protect you from further rate increases. However, keep in mind that there might be better fixed rates available elsewhere, so exploring other options and comparing rates may be beneficial. Once you've decided on the best course of action for your situation, get in touch with your bank to initiate the necessary changes.
3: Understanding the Math Behind Trigger Points
If you're interested in understanding the math involved in Trigger Rates and Trigger Points, follow these four steps:
Calculate your current variable rate.
Determine your Interest Rate Breaking Point, where the interest portion of your mortgage exceeds your total monthly mortgage payments (which include both interest and principal).
Understand when you are forced to make a move by hitting the Trigger Point, where your current mortgage and total deferred interest payments surpass 80% of your home's appraised value.
Take Steps to Avoid Your Trigger Point Making lump sum payments online or visiting a branch for manual assistance can help extend your Trigger Rate and keep your mortgage balance in check.
THE BOTTOM LINE
Reaching a Trigger Point in your mortgage can be a daunting experience, but with the right understanding and proactive steps, you can take control of your financial situation. Assess your options carefully, make informed decisions, and reach out to your bank to navigate through this process smoothly. Stay empowered and informed throughout this journey!
Do you want to learn more about mortgage financing in Canada? Level Up Mortgages supports homebuyers and homeowners in attaining success in their mortgage journey with mortgage strategy, digital mortgage education, and introductions to all the other experts you need to succeed in home buying and personal finance. Level Up Mortgages makes it easier for new buyers, real estate investors, and even the self-employed to find the funding they need. If you are looking for conventional or private lending in Canada, get in touch with us today!
Level Up Mortgages is a mortgage broker team focused on helping the self employed, new immigrants, non-residents, and investors, access best rate and alternative lending in Canada. We have been nominated for best up and coming broker in Canada in 2021 and have been on CTV News and various publications because of our education-first approach to helping you always stay a step ahead of the process. Reach out to us for access to our first-time buyer course or a mortgage strategy session.
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Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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