Recently, the Bank of Canada announced a 1% interest rate hike, which frightened many "house slaves" who were still repaying loans.
Source: Reuters
During the epidemic period, many homeowners with mortgages changed the original fixed interest rate to a floating interest rate when they took out loans. There are also some homeowners who have just bought a house in recent years, and they have also chosen floating interest rates. This means that the central bank's successive interest rate hikes have deeply affected their wallets.
The house slave was shocked: the loan sharing period was 589 months, almost "doubled"!
A netizen of the Toronto Chinese Forum posted: "Pay attention to your own loan account, don't look at it, look at it and be shocked, the remaining number of months of repayment is 589 months, take out the calculator and calculate, good guys, close to 50 years!" ”
Source: Toronto Chinese Forum
The figure above shows that his original apportionment period was 360 months, and the actual number of months remaining was 589 months. The repayment frequency is bi-weekly, $957.46 each, which is equivalent to about $2074.5 per month.
The Chinese netizen asked: "Wasn't it the 30 years that were chosen at the beginning?" At the end of last year, Renew's floating interest rate, the interest rate rose to the point that the number of years was actually doubled! Do you have any good suggestions, the current monthly repayment amount is relatively low, is it necessary to increase the repayment amount? ”
In this regard, some Chinese netizens expressed their incomprehension.
According to a CIBC loan broker, "If you choose a floating rate, that's it. The central bank raises interest rates, although the bank does not increase your monthly payment, but the proportion of interest in the monthly payment will increase, resulting in a reduction in principal repayment, and it is necessary to extend the apportionment period. ”
"Of Canada's five largest banks, only Scotiabank, which rises with the monthly loan payment at floating interest rates every time the central bank raises interest rates."
"If you don't want to increase your monthly payments at the next rate hike, then consider speeding up your repayments."
A bank has an example of this: a loan of $300,000, apportioned for 25 years, with a floating interest rate of 2.45%. When the interest rate rises to 2.7%, if the monthly payment is not changed, it will cause the apportionment period to increase from 300 months to 313 months, and the amount of loans owed will also rise from $253,734.35 to $257,455.06.
Some netizens said that taking the situation of the posting netizen as an example, if the interest rate is raised by 75 basis points, the repayment amount is enough to cover the interest, and the apportionment period will become infinite... That is, the trigger rate triggers, and the bank will force you to repay more.
Source: Toronto Chinese Forum
So! What is a striker rate?
Recently, many Chinese people are learning about the striker rate and want to know when their floating interest rate loan monthly payments will start to rise. Tina Jia, another loan industry insider in the Little Red Book, explained the trigger rate in detail, you can refer to it:
Source: Little Red Book
In view of the fact that many house slaves are curious about their trigger rate, she directly sent the calculation formula of the trigger rate: monthly payment ÷ loan amount x12.
However, the loan broker further explained that a trigger rate is the point of interest when your interest rate rises to the point where your monthly payment is fully used to repay interest and you have no money to repay the principal. It should be emphasized that instead of triggering the tier rate, you need to increase your monthly payment. What really triggers the increase in monthly payments is actually another concept called designated amount.
She said that when interest rates rise, your underpayment of principal will be added to the total loan amount, and at the next renew, the bank will adjust your new term and apportionment period. At that time, your actual loan amount will be more than the schedule shown when you signed the documents.
As long as this balance is not higher than: 1, 80% of your house price, or, 2, the low value of 105% of your original loan amount, in principle, the bank will not ask you to increase your monthly payment.
If your loan is more than 80% of the house price, the kind of Insured Mortgage that requires the purchase of insurance liquidated damages, that is, a down payment of less than 20%, then your Designated Amount is 105% of your loan amount.
For example, if you have a $1 million home price, $400,000 loan, and a monthly payment of $2,000, your striker rate is 6% ($2,000÷ $400,000×12). Your designated amount is: 80% of the house price (800,000) vs 105% of the original loan amount (420,000), whichever is lower, so it is 420,000. In other words, when the total loan amount you have accumulated reaches 420,000, the bank will contact you to discuss increasing the monthly payment.
At this point, she says, you have 3 options: increase your monthly payment, overpay your principal at one time, or switch to a fixed interest rate.
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