Quote:
Originally Posted by tvp2003
If you have a fixed rate mortgage it's fixed for the entire term.
I think what they were referring to is a variable mortgage -- and more specifically a variable rate mortgage or VRM, as opposed to an adjustable rate mortgage or ARM -- where your payment stays the same (even if interest rates rise), up to a certain point where your monthly payment no longer covers off the interest amount. Once you hit this "trigger rate", your payments start to increase as well just to keep up with the interest rate hikes.
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Bang on...definitely referring to VRMs vs ARMs.
VRMs have static payments, that are set based on the rate at time of funding. So if net rate was 1.25% for example when prime was super low, then those payments may not be high enough to cover interest based on today's prime rate, so they have hit their "trigger rate". They will be forced to do a lump sum payment, or increase their monthly payments by a certain amount.