A borrower's mortgage payment increases beyond their ability to pay due to interest rate changes. The lender agrees to extend the amortization period to reduce monthly payments. What risk does this create for the borrower?
Correct Answer
A) Higher total interest costs over time
Extending the amortization spreads the remaining balance over more years, which lowers each payment but means interest is charged on the outstanding balance for longer. The borrower gets short-term relief at the cost of substantially higher total interest over the life of the mortgage.
Why This Is the Correct Answer
This answer is correct: spreading repayment over more years lowers each payment but keeps the balance outstanding longer, so the borrower pays considerably more interest over the life of the mortgage.
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A borrower has a variable rate mortgage with fixed payments. After several Bank of Canada rate increases, the payment stopped covering the interest, and the unpaid interest added to the balance has now pushed it past the trigger point in the mortgage contract. What happens next?
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A borrower's mortgage reaches the trigger rate on their variable rate mortgage. What does this mean?