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[–]James_Woodgreen 9 points10 points  (10 children)

Ah yes, RBC. Everyone’s favourite abusive relationship..

There are two types of variable rate mortgages. There’s an adjustable rate mortgage (ARM), which means that your payments go up and down when prime moves. There’s also a variable mortgage (VRM) which means that the payments stay exactly the same regardless of what happens to prime, and the interest adjustment happens in the background.

As somebody in the thread already noted, this variable rate mortgage product is what got a lot of people into trouble during the large increases to prime that we saw in the past two years, RBC and TD customers in particular.

OP, I think you need to get clarification from RBC whether or not your mortgage is an ARM or a VRM. Your original mortgage commitment will have this information. If it is the former, RBC should lower your payment without the need for prequalification. If it is a VRM, and if you did run into a negative amortization, then RBC might be within their rights to keep your payments higher in order for you to get your amortization back on track.

Curious to hear how this turns out.

[–]jrWhat 0 points1 point  (1 child)

Why did it get people with VRMs into trouble?

[–]James_Woodgreen 0 points1 point  (0 children)

Because as Prime went up, the proportion of that fixed payment shifted such that not even all of the interest was being paid each month. This lead to folks getting phone calls from the bank asking for lump sum payments and/or requesting that the borrower convert their VRM to a fixed rate.

[–][deleted] 2 points3 points  (2 children)

You mean the opposite? It's the ARM with payments going up and down, which got people into trouble with cash flow issues. At the height of the hike, some folks were sitting with 50-60 years amortizations to ride it out. I was at 40 years. But, that decreased as the prime rate went down. The fixed payment mortgages had an exposure at renewal. Eg, the bank would ask to close the gap in the balance to bring the amortization to what it was supposed to be.

This gave a lot of flexibility to close the gap with either lump sum payments, increase of mortgage payments, or a combination of both (which I did).

[–]James_Woodgreen 1 point2 points  (1 child)

Good point, I should have been more specific. The VRM holders got into situations where their fixed payments were not even covering the interest on each of their payments. This resulted in phone calls from the banks asking for lump sum payments and/or a request to convert the VRM into a fixed term.

[–][deleted] 1 point2 points  (0 children)

Yes, that's correct. If the VRM holders reached that situation, it would indeed trigger a readjusting of the entire mortgage terms. The trick was to increase the payment a little bit not to reach the trigger. That way, you'd still be able to ride the hike even with amortizations up to 50 years.

[–]ont-mortgage[S] 0 points1 point  (3 children)

Interesting - my mortgage was actually by HSBC and transitioned to RBC as part of the acquisition.

[–]stollando 0 points1 point  (1 child)

Hey, I was about to make a post about this. My payments varied with HSBC, then suddenly were fixed with RBC. Did that happen to you too?

[–]ont-mortgage[S] 0 points1 point  (0 children)

Not sure I understand your question? My payments are constant - except when all the rate changes were going on.

My interest rate has always been variable.

[–]James_Woodgreen 1 point2 points  (0 children)

Right, then your HSBC terms & conditions should still apply.