Be Your Own Advocate!

General Darla Nicholson 5 Oct

The last few years, we as a society have seen and endured many changes. And then those changes changed a few times too! As a result, there are so many unknowns out there…. From travel restrictions and requirements, to health policies and procedures to constantly shifting stock and financial markets. The only way to navigate life these days IS to ask questions, and and ask them often. Now more than ever, it is crucial for us as individuals to be our own advocates to ensure our physical and mental health, as well as our financial health. The glory days of being able to sit back and “let things ride” are no longer, as service providers, services and products are less easily available or accessible and those that are, are stretched thin. It’s much less stressful to be proactive than reactive, as the consequences of not asking questions in this economy could be harsh and long lasting. I’m no doctor or counsellor (although as a mom of 3, I often feel like it), but I can help you keep your financial health in order. Interest rates have risen so much that anyone in a variable rate mortgage absolutely MUST go to their lenders and ask some questions. You need to know what kind of mortgage you have, when your term ends, what your payments are, and how your trigger rate and trigger point are determined. If the answers to those questions leave you uncomfortable, worried or slightly queazy, you’re not alone. A recent Globe and Mail article noted, “Nearly three in every 10 homeowners with a mortgage had a variable interest rate at the end of 2021, according to the Bank of Canada. Of those, four out of five had fixed payments.”
 
Do YOUR due diligence and ask the right questions of your lender today. The least you can do for yourself or your family is arm yourself with knowledge so that you can asses your situation and take time to research all the options that COULD be available to you. Banks are great but your bank can only offer you their products at their rates. Brokers have access to handfuls of lenders with different products, policies and rates, many of which often offer significant benefits over what is available in a traditional banking institution.
 
My door is always open, I’m always available (unless the soccer field is too loud), and I’m happy to give you information if you want to explore what options are available to you….no pressure. Just go ask the questions!

Trigger Rate, Trigger Point and Why EVERYONE Should Understand

General Darla Nicholson 4 Oct

Since the pandemic, it seems the whole world has gone sideways……used cars are almost as costly as new cars, new cars have 3 year wait lists, online purchases take forever and a day to arrive, gas and food costs are up (have you bought grapes lately???) are and now interest rates have pushed home financing costs to the threshold of many homeowners.

According to the Bank of Canada “Nearly three in every 10 homeowners with a mortgage had a variable interest rate at the end of 2021. Of those, four out of five had fixed payments.” I’ve heard it suggested, that’s around 750,000 mortgages. In an August Tweet, Ben Rabidoux, a prominent housing market analyst reported that $260B worth of variable rate mortgages were originated between March 2021 and February 2022 at an avg rate of 1.58% The Royal Bank of Canada reported in August during the company’s earnings call that approximately 80,000 variable-rate mortgage holders will hit their trigger rate in the “next couple of rate hikes.” That’s a lot of people! If you’re a homeowner, you NEED to check your mortgage to see what kind of mortgage you have, what your payments are, and when your renewal date is. You’re too young to have heart failure when the bank sends you THAT letter! Be proactive, be prepared!

Monthly Variable Rate Mortgage Originations

The “trigger rate” is when the prime rate rises to the point where your personal scheduled mortgage payments are only paying interest and not principal. This is not allowed under Canadian lending rules. At this point you would need to either increase your regular payments or convert to a fixed rate mortgage.

The “trigger point” is when the outstanding principal amount exceeds the original principal amount. At this point, a homeowner has 3 basic options if they can’t or don’t want to refinance and extend their amortization (which would result in pre-payment penalties):

  • Make a lump-sum payment against the loan amount
  • Convert with a new loan at a fixed-rate term
  • Increase the monthly payment amount to pay off the outstanding principal balance within the remaining original amortization period.

If you are fortunate enough to have multiple properties, some of which you own free and clear, then there may be other creative ways to manage your finances, but that’s a story for another day and another cup of coffee….

Don’t be ambivalent. Every lender has a different course of action when it comes to determining what happens when you hit your trigger rate. Go today and pull your mortgage paperwork out, go online or call your lender to check what your current payments are, and how they deal with trigger rate/point, and at least know where you stand. It might not be great news, but at least you’ll be in a position to explore the options your circumstances offer before the bank is breathing down your neck.

Have questions or want help interpreting your mortgage paperwork? Text, call, email me. If you’re feeling kinda shy, just go ahead and download my handy app at https://dlcapp.ca/app/darla-nicholson/download and do some exploring yourself before reaching out.  Even easier, scan this QR to go directly to the app!

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