A little ashamed to admit this but I was at my bank yesterday and learned I am fast approaching the trigger rate on my variable rate mortgage. Here are my numbers:

Current mortgage: $944k Current variable rate: 3.69% Bi-weekly payments: $1,537 Trigger rate: 4.24% Market: Vancouver

So, if and when the BOC raises the prime rate by more than 0.56%, my trigger rate will kick in. From my understanding, this means my bi-weekly payments will increase by 20 to 30% to cover the interest portion and a small part of the principal. I am extremely lucky because I have access to $120k from the sale of investment property which I plan to put down on the principal to raise my trigger rate to approx 4.85%.

It’s kind of scary to think that 53% of Canadian mortgages are variable rate. Most of these mortgages will have their trigger rates reached with the next BOC prime rate increase, therefore increasing their mortgage payments by 20 to 30%. So many homeowners have overextended themselves by buying properties they could only afford with record low rates. With a 20 to 30% increase in their mortgage payments, they may not be able to afford their homes.

So the point to this long-winded post is; are we about to experience a replay of the 2008 housing crisis?

Edit: thanks for all you comments. I actually do consider myself financially literate, thanks for that comment. My initial rate was prime -1.02. When I signed up for a variable, I accepted the risk. I was just quoted 4.9% on a 1 year fixed. I personally don’t think prime will increase enough for my variable will be over 5%. But that’s just me and everyone’s entitled to their own opinion. To rent in my area is actually close to a mortgage payment. I’m not going to lose my house but I strongly believe there will be a lot of people affected by this in the coming year.