There has been some talk lately in the news about trigger rates. I am going to explain what
they are and how they can affect you.

What are trigger rates…

We are currently facing rising interest rates (although hopefully we are approaching the peak in 2023).  If you have a variable-rate mortgage you might be getting close to your trigger rate.  What does that mean?  As the interest rate rises, your payment on your variable-rate mortgage may not be covering the interest accrued each month.  Basically, your payment is only covering part of your interest payment, and nothing is going down on the principal portion of your mortgage.  This excess interest is called “deferred interest” and is added to the principal each month.  This is “negative amortization” and crates a situation where you actually owe more on your mortgage each month instead of paying it down.

What happens when I reach the trigger point…

Your individual mortgage will define what you must do if you reach your trigger point.
Generally, though, you will have 4 options when this happens:

• Increase your amortization. Spreading the mortgage over 25 instead of 20, for
  example, will lower the interest portion of the payment and put you back into
  positive amortization
• Ask you lender to switch you to a fixed mortgage. This will help you avoid the trigger
  point.
• Increase your payment. For many this is the easiest solution, if the increased
  payment is within your monthly budget.
• Make a lump-sum payment on your mortgage, which will go directly on the principal
  and thereby reducing the amount of interest each month. Most mortgages allow up
  to 15% of the original mortgage amount each year as a lump-sum payment. So, for
  example, if your original mortgage was $400,000, each year you could make up to a
  $60,000 lump-sum payment. This is not an option for everyone, but may be a good
  use of extra cash if it’s on hand.

If you are concerned about your current mortgage, and trigger rates, or for any other mortgage
questions, please contact me for a no obligation discussion!

The Government of Canada has created a program to help first-time home buyers with the purchase of a home.  It is called the First-Time Home Buyers Incentive.

In a nutshell, the government is willing to give the purchaser 5-10 percent of the purchase value of the property as a down payment.  In return, the government basically retains a 5-10% stake in the property.  This means if the value of the property increases, so does the repayment amount by that same percentage (to a maximum of 8% per year, if it increases more than 8%, the extra goes to the homeowner).  If the value decreases, so does the amount owed back to the government by the same percentage (also to a maximum of 8% per year).

What is the advantage…

The advantage of the program is that it allows the homeowner to decrease the size of their mortgage by this amount which may allow them to qualify for the mortgage.

Am I considered a first-time homebuyer…

This is actually a bit complicated, however, if you or your spouse (married or common law) have owned a home or one of you has lived in a home the other has owned in the past four years, you likely do not meet the requirements. But if you are buying solely and have never owned a home anywhere in the world, or you and your spouse are buying and have never owned a home anywhere in the world, you will qualify as a first-time home buyer.

Am I otherwise eligible…

To be eligible, you must match the following additional criteria:

• Your total qualifying income does not exceed $120,000 ($150,000 if home is in Toronto, Vancouver, or Victoria)
• Your total mortgage amount does not exceed 4 times your qualifying income (4.5 times if you are in Toronto, Vancouver, or Victoria)
• You are a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
• You meet the minimum down payment requirements, using savings, RRSP funds, or a non-repayable financial gift from a relative
• Your first mortgage must be greater than 80% of the value of the property and is subject to loan insurance premium. Therefore, it must be eligible for Canada Guaranty, CMHC or Sagen mortgage insurance.

Eligible Properties…

The subject property must match the following criteria, and the type of home will dictate the amount of the incentive:

• New construction (5 or 10%)
• Existing home (5%)
• New or existing mobile/manufactured home (5%)
• Single family homes
• Semi-detached homes
• Duplex
• Triplex
• Fourplex (4 units is the maximum the property can have)
• Town houses
• Condominium units
• Mobile homes
• Must be a full-time owner-occupied property. Can not be a cottage or investment property.

The incentive is kind of like a second mortgage on your home. You can apply for the incentive through your mortgage broker and lender, who will submit the package for you.  To learn more about this program, or for any other mortgage questions, please feel free to contact me. And good luck with the house hunting!