So for most of the last year and half we have watched variable rate mortgages steadily increase. As the Bank of Canada raised the key interest rate the bank's prime interest rate followed suit and that in turn caused the variable rate mortgages to jump. So after three straight rate cuts, why isn't your payment dropping in turn?
There are two types of variable rate mortgages:
The straight variable rate mortgage means as the rate goes up your payment stays the same but you pay less principal, at least until you hit the trigger point, meaning you are no longer paying any principal down, you are in fact building interest. At this point the banks in varying ways will raise your payment to ensure you do not fall behind.
The Adjustable Rate Mortgage is similar to the variable mortgage but instead of your payment staying the same until you reach the trigger point, this mortgage will increase your payment for each rate hike, meaning your payment will jump with each rate hike, keeping the principal payment the same.
But what does this have to do with my payments not dropping?
So the good news, if you have a mortgage with ScotiaBank or any of the Mortgage Financing Corporations, such as RFA or Marathon Mortgages. Then you do not have to worry, they all have internal algorithms that will adjust this down, the same way as up.
Now for the bad news, if you are with RBC, they have an automated system where you will always be paying at least $5 of principal. TD, CIBC, BMO and have various automated increases to keep you out of the red on payments.
None of those four have automated drops however. Meaning that as the rates come back down, your payment remains static.
So to answer the question, "When will my mortgage payment go down?"
It isn't going to.
You can go into the bank and request a drop but they have no obligation to do so, plus it's a difficult and time consuming process.
You may simply be stuck where you are, at least you will be paying more on your principal.
Give us a call and lets see if we can help.
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