CostYou have a fixed-payment variable-rate mortgage, and rates have risen enough that your set monthly payment is at risk of no longer covering the full interest charge for the period.
Fixed-payment variable mortgage, rate rising
| Fixed monthly payment | $2,200 |
| Interest owed at original rate | $1,650/mo |
| Interest owed after rate increases | $2,200/mo (trigger point) |
| What happens if rates rise further | Payment no longer covers full interest |
What usually happens
This is the trigger rate mechanic covered in our trigger rate market update, described here at the point it actually happens to you. Once your fixed payment no longer covers the full interest owed for the period, one of two things occurs, depending on your specific mortgage's terms: your lender may allow negative amortization (the shortfall gets added to your principal balance) up to a set limit, or they may require you to increase your payment to at least cover full interest.
What you can do about it
- Contact your lender proactively once you're aware you're near this point, rather than waiting for them to reach out — options are often more flexible when you initiate the conversation early.
- Consider voluntarily increasing your payment to stay ahead of the trigger point, if your budget allows, avoiding negative amortization altogether.
- Ask about converting to a fixed rate — some variable mortgages allow a mid-term conversion to fixed, which removes the trigger rate risk going forward, though it locks in whatever fixed rate is available at that time.
- Understand your specific mortgage's negative amortization limit, if any — most have a cap (often around 105% of the original principal) beyond which the lender will require an immediate payment adjustment.
Who to ask
Talk to your lender or mortgage broker as soon as you suspect you're approaching this point — this is a genuinely manageable situation with more options the earlier you engage, and a harder one if you wait until the lender contacts you about it. See what a payment adjustment would look like on the mortgage payment calculator.