• TD VARIABLE CLIENTS

    Do you have a variable rate mortgage (VRM) with TD?

    Have you received a letter from them discussing the trigger rate and/or trigger point? 

    If so, please continue reading as the following information is generally not offered by the bank: 

    Definitions:

    ·        Trigger rate: when your rate increases to a point where the payments no longer cover the interest portion of the mortgage, you will receive a letter saying that you have reached your trigger rate. Now the principle balance will start increasing (this is called negative amortization). 

    ·        Trigger point: when your principle balance exceeds the original amount borrowed, you will receive a second letter saying that you have exceeded the trigger point by $X.

    If you have reached your trigger rate, you actually don’t need to do anything (yet). They are just notifying you that your monthly payments are insufficient to cover the interest and principle and so your principle is now rising. 

    If you have reached your trigger point, the bank will offer the client 3 solutions: 

    Option 1: Make a large lump sum payment so that the current payments will keep the amortization on track. 

    Option 2: Increase their payments to keep the amortization on track. 

    Option 3: Lock into a fixed rate mortgage.

    In other words, the objective of the bank is to keep the amortization on track. This will usually require a very large lump sum payment (could be hundreds of thousands), or a jump in payments of upwards of 72%. 

    Option 4: Make a relatively small lump sum payment and increase your monthly payments by a relatively small amount.

    There is a fourth option that they do not tell you about, and that is to make a relatively small lump sum payment to bring the principle balance back to the original amount borrowed. But it is important how we approach option 4. Here are the steps:

    Step 1: Take the trigger amount from the letter (this is the amount by which you have exceeded the original principle) and add $1000 onto it ($2000 for larger mortgages to be safe). Let’s say the amount on the letter is $500.

    Step 2: Call the 1-800 number or go into the branch and say the following: 

                   “I would like to make a lump sum payment on my mortgage of $1500.” STOP THERE

    Step 3: Wait a day. 

    Step 4: Take the original mortgage amount and your current variable interest rate, and calculate the interest only payments. (You can do this by multiplying the principle by the interest rate, dividing by 100, and dividing by 12 months.) Let’s say you are currently making payments of $2000/mth and the interest only payments are $2500/mth. 

    Step 5: Call the 1-800 number or go into the branch and say the following: 

                   “I would like to increase my monthly payments from $2000/mth to $2500/mth.” STOP THERE

    It is important not to elaborate, not to explain your goals and not to discuss trigger points or trigger rates or letters, just those 2 phrases above. 

    If you would like to discuss, please never hesitate to contact us. 

    Sincerely, 

    Sean and Robert

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