May 15, 20263 min read
This is one of the most useful questions to answer early in the mortgage process. Not all variable mortgages react to a rate increase in the same way. Some have payments that change immediately, while others keep the payment fixed and change how much goes to interest and principal.
The factors that change the answer
Here is what matters most:
- With an adjustable-payment structure a prime-rate increase normally raises the scheduled payment.
- With some fixed-payment variable mortgages, more of each payment goes to interest as rates rise, extending the effective amortization.
- A trigger rate is the point at which the scheduled payment may no longer cover the required interest under certain fixed-payment variable products.
- Lender contracts explain what happens at trigger thresholds, including possible payment increases or lump-sum requirements.
Before choosing variable, understand your lender's specific payment mechanics rather than relying on the generic label.
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