Some variable-rate mortgages offer the option of a fixed payment. So, even if interest rates rise (or fall), your payment stays the same.
There is an exception to this. It occurs when prime rate goes up so much that your fixed payment no longer covers the interest you owe each month. That point is called the “trigger rate.”
When you hit the trigger rate, your lender will increase the fixed payment on your variable-rate mortgage to ensure you’re covering the interest due.
As a very rough rule of thumb, prime rate generally has to rise about 2% or more for you to hit your mortgage’s trigger rate.
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Last modified: June 13, 2008
