Are you looking for clarity on TD’s variable interest rate mortgage with the recent Bank of Canada interest rate increases?
You may have chosen a variable rate for its flexibility, predictable pre-payment penalty and lower initial rate to that of a fixed term. With the recent Bank of Canada interest rate increases, many are looking to revisit the variable terms, specifically the trigger rate and trigger point.
TD Variable Interest Rate Product – Key Facts
A variable interest rate credit product is subject to interest rate fluctuation. The interest rate will change automatically if and when the TD Mortgage Prime Rate (for mortgages) or TD Prime Rate (for TD Home Equity FlexLine Term Portions) changes. After the Mortgage or Term Portion has been funded, the payment amount will stay the same until renewal or until you make a change to the payment schedule. In an increasing rate environment, this will push out your actual amortization on the loan. When your mortgage/Flex term portion comes up for maturity TD will adjust the payment at that time to reflect the current remaining contractual amortization. (Eg. starting at 30 years and at the end of 5 years at renewal, the new payment will be based on 25 years which is what is remaining based on the original mortgage loan contract).
What is the difference between Trigger Rate and Trigger Point?
Trigger Rate:
As interest rates on variable products increase and the payments don’t change, there will be a point where the principal and interest payments can no longer cover the interest charged on the Mortgage or Term Portion. The trigger rate is the rate when the payment would be 100% interest. If your rate goes above the trigger rate, then the unpaid interest will be added onto your mortgage balance. TD will send you a letter advising of this and recommend that you make lump sum payments or increase the payment amount. While it will not be required, it is recommended, because the balance of your mortgage will be increasing by the unpaid interest and you will be paying interest on interest. TD will allow this but once the balance hits the trigger point (below), a payment increase or lump sum payment will be required.
Trigger Point:
For a Conventional Variable Interest Rate Mortgage (VIRM), the Trigger Point is when the principal of your mortgage has increased (due to unpaid interest being added to it) and reaches 80% of the value of your property at time of approval. For an Insured VIRM, the Trigger Point is when the balance reaches 105% of the property value.
What happens once your mortgage reaches the Trigger Point? How are you notified?
TD will notify you by letter and inform you of how much the principal amount exceeds the Trigger Point (the excess amount). Once notified, you will have 30 days to: make a lump sum payment; increase the amount of the principal and interest payment; or convert to a fixed rate term. If you take no action, you will be contacted by TD Helps to resolve their account. If no action is taken to address the rising balance after three call attempts, the file is transferred to TD Specialized Customer Assistance for enforcement as the Mortgage is now in default.
How is the trigger rate calculated?
Trigger rate is communicated at the time of funding in the Mortgage Loan Agreement (MLA)…if you don’t have a copy of this, I can help you get a copy of this from TD to help plan your future. Note: Any Changes made to your payment (frequency or payment due date) and any lump sum payments will result in your Trigger rate being recalculated. TD will provide you an amendment agreement that confirms your new trigger rate and cost of borrowing reflecting the changes.
If you have questions, please do not hesitate to contact me to discuss!