"When Your Mortgage Bites Back: Understanding the Dreaded Trigger Rate in Canada"

For Canadian variable rate mortgage holders with fixed payments, the term "trigger rate" can spark anxiety.

This is the point where the interest payment equals the total payment amount due to rising interest rates, leaving nothing for the principal.

It's not an ideal situation, but receiving a letter in the mail stating you've hit this trigger rate doesn't spell disaster – we're here to help you understand your options.

Deciphering Your Options

When you reach out to the service department through the number on your trigger rate letter, you'll typically be presented with three options:

1. Make a Lump Sum Payment: This involves making a hefty one-time payment to bring your outstanding balance back in line with your current payments. 

2. Increase Your Principal and Interest Payments: Here, you need to raise your monthly payments to cover both the principal and the heightened interest.

3. Convert Your Mortgage to a Fixed Rate Term: You could switch your variable rate to a fixed rate term of at least three years, or the remainder of your current term, whichever is lesser.

A Potential Fourth Approach

A less conventional yet often overlooked approach – let's call it the fourth approach – is not guaranteed and requires explicit permission from your lender. It involves implementing a three-step plan:

1. Calculate Your Interest-Only Payment: Review your outstanding balance, your current interest rate, and calculate your interest-only payment every month. You might find that you only need to increase your monthly payment by 5-10%.

2. Make a Preemptive Lump Sum Payment: If, for instance, your $750,000 mortgage exceeded the trigger point by $750, make a one-time payment of about $1,500, which is double the exceeded amount.

3. Request a Monthly Payment Increase: Seek to increase your monthly payment to correspond with the current interest on the outstanding balance. 

This approach can be hit or miss, as its approval depends on the lender. But if approved, it may result in a relatively small percentage increase in your payment, helping keep your mortgage on track and offering a smoother financial journey.

However, there's no one-size-fits-all solution. Everyone's situation is unique, and it's important to remember that the third option – converting to a fixed rate term – could also be beneficial, depending on your circumstances. 

Navigating these waters can be tricky. Therefore, consulting with a mortgage broker or a financial advisor who can personalize a solution to your specific situation is always a wise move.

Don't let the mortgage blues get you down. There's always a path forward, even if it means taking a few careful, calculated steps.