Trigger Rate

A risk unique to one kind of mortgage

The trigger rate exists on exactly one product: the fixed-payment variable, the structure most big Canadian banks use for their variable-rate mortgages. Your rate floats with the lender's prime rate, but your payment does not move. When prime rises, the payment stays put and the split inside it shifts: more of each dollar goes to interest, less to principal.

Push rates high enough and you reach the point where the entire payment is interest and not a dollar reaches the principal. That rate is your trigger rate. An adjustable-payment variable, the kind where the payment is recalculated every time prime moves, can never hit one: the payment simply rises to keep covering interest plus the scheduled principal.

How to estimate yours

A rough formula gets you close: (your payment × number of payments per year) ÷ your mortgage balance. A $2,000 monthly payment on a $400,000 balance gives (2,000 × 12) ÷ 400,000, or about 6.0%. If your rate reaches 6.0%, that $2,000 covers interest and nothing else.

The exact figure is slightly different because Canadian mortgage interest compounds semi-annually, so ask your lender for the precise number; many banks now display it in online banking. It is also a moving target, in a good way: every dollar of principal you pay off and every voluntary payment increase pushes your trigger rate higher, farther out of reach.

What happens past the trigger rate

Cross it and your payment no longer covers the interest owing. The monthly shortfall is added to your balance, so the mortgage grows instead of shrinking and your amortization effectively runs in reverse. This is negative amortization: at the current payment, the loan would never be repaid, and statements can show absurd remaining amortizations while it lasts.

Lenders do not necessarily step in the moment you cross the trigger rate. Most contracts let the balance drift up until it hits the trigger point, commonly when the balance exceeds the original loan amount or a set percentage of the home's value (105% is a typical ceiling for insured mortgages). At that point the lender requires you to act, and typically offers a menu:

• Increase your regular payment so it covers interest and principal again
• Make a lump-sum prepayment to bring the balance back down
• Convert to a fixed rate, locking in current fixed pricing
• In some cases, extend the amortization at renewal to reset the schedule

When Canada met its trigger rates

The term went mainstream in 2022 and 2023, when the Bank of Canada raised its policy rate from 0.25% to 5.00% in under 18 months. The Bank estimated that a large majority of fixed-payment variable borrowers hit their trigger rate during that stretch. Big banks disclosed tens of billions of dollars of negatively amortizing mortgages, some showing remaining amortizations beyond 35 years on paper, and called customers to raise payments or collect lump sums.

As rates came back down through 2024 and 2025, most of those mortgages moved back onside, but the episode permanently changed how the product is sold, disclosed, and supervised.