Knowledge Base
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How does Broker Scout calculate trigger rates?
Trigger rates are specific to variable rate mortgages with static payments. It is the point at which the interest rate on your variable rate mortgage has increased so much that your payments are not enough to cover the interest that accrues between payments and is no longer paying down any of the principal. This rate is calculated by multiplying the payment amount by the number of payments per year and dividing by the current balance, times 100 for the rate.
Trigger Rate = [(Payment amount x Payments per year) / Current mortgage balance] x 100
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This calculation is imperative to understand if the existing mortgage has become completely unsustainable. Mortgages at or beyond their trigger rate are no longer paying any of the principal balance within the current term, and are not progressing in owning more of their property through their payments. Mortgage Brokers should be working aggressively on behalf of clients that have met or exceeded their trigger rates to find them a refinancing opportunity that they can qualify for in order to stop their clients from making payments towards nothing.
How does Broker Scout calculate penalty payments?
Penalties for fixed rate mortgages are calculated in two parts. First, we determine the IRD (Interest Rate Differential) penalty. This is done by comparing the posted rate at IAD and the current posted rate for the term closest to the remaining term length. The difference is divided by the number of payments per year to get the IRD Factor.
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Next, the current balance on the mortgage is multiplied by the IRD Factor and the number of payments remaining in the current term to give the IRD Penalty (the maximum value of zero or IRD penalty is selected).
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Three Month Interest Penalty is calculated simply by multiplying the current balance by the annual posted rate and dividing by four. The higher of these two numbers is selected as the penalty to be applied to the mortgage. For variable and adjustable rate mortgages, only Three Month Interest Penalty is considered.