When Your Variable Payment Stops Covering Interest: Trigger Rates Explained (2026)
On a fixed-payment variable mortgage, rising rates shrink the principal portion until the payment covers interest only, then negative amortization.
On a fixed-payment variable mortgage the payment stays constant while the rate moves. As prime rises, more of each payment goes to interest and less to principal. At the trigger rate the entire payment is interest; above it, interest exceeds the payment and the unpaid interest is added to the balance. That is negative amortization. A $500,000 mortgage with a payment of $2,510 (set when the rate was 3.55%) reaches its trigger rate at about 6.1%. Most lenders act at the trigger rate or at a trigger point (balance reaching a set percentage of the original, often 100% to 105%) by raising the payment, requesting a lump sum, or converting to fixed. With prime at 4.45% in September 2026, most 2020–2022 variable borrowers are well below trigger; the risk returns if rates rise.
Figures come from the CostToClose trigger rate calculator.
Estimating your trigger rate
Trigger rate ≈ (monthly payment × 12 ÷ balance), adjusted for semi-annual compounding. For $2,510 a month on $500,000: 2,510 × 12 ÷ 500,000 = 6.02% simple, about 6.1% on a semi-annual-compounding basis. As the balance falls the trigger rate rises, so a borrower three years in has more room than one at the start.
| Balance | Payment | Trigger rate (approx.) |
|---|---|---|
| $500,000 | $2,510 | 6.1% |
| $450,000 | $2,510 | 6.8% |
| $400,000 | $2,510 | 7.65% |
Run through the CostToClose calculator, 14 September 2026.
What happens when you cross it
| Stage | What the lender does |
|---|---|
| Approaching trigger | Statement shows principal portion near zero; many lenders send a letter |
| At trigger rate | Payment covers interest only; balance stops falling. Some lenders raise the payment immediately |
| Above trigger rate | Unpaid interest is capitalized; balance rises each month |
| At trigger point (e.g. balance = 105% of original) | Lender requires a payment increase, a lump-sum prepayment, or conversion to a fixed rate — per the mortgage terms |
| At renewal | Payment is reset to re-amortize the (larger) balance over the remaining years; the 2021–2026 renewal cohort saw this |
Adjustable-rate variables (payment moves with prime) never hit a trigger; the payment simply rises with each Bank of Canada move.
The four responses
- Raise the payment voluntarily to the amount that re-amortizes properly. Most lenders allow a payment increase of 10% to 20% a year without penalty. On the example, restoring a 22-year amortization at 6.5% needs about $3,540 a month.
- Lump-sum prepayment within the annual privilege to bring the balance down and the trigger rate up.
- Convert to a fixed rate for the remaining term or a new term, without penalty at most lenders, at the rate offered that day, which will be higher than the variable was.
- Wait, if the amortization has room and you expect cuts. Negative amortization is not default, but it is expensive: every capitalized dollar accrues interest.
Worked example from the calculator
$500,000 mortgage, payment $2,510, prime rises so the contract rate reaches 6.75%:
| Item | Monthly |
|---|---|
| Interest at 6.75% | ≈ $2,774 |
| Payment | $2,510 |
| Unpaid interest added to balance | ≈ $264 |
| Balance after 12 months | ≈ $503,260 |
| Payment needed to re-amortize over 22 years at 6.75% | ≈ $3,640 |
Frequently asked questions
What is a trigger rate?
The interest rate at which a fixed-payment variable mortgage's payment exactly covers the interest, with nothing left for principal. Above it the balance grows.
How do I calculate my trigger rate?
Roughly, annual payments divided by the balance. $2,510 a month on $500,000 is about 6.1%. Your lender's statement or online banking usually shows it.
What is the difference between trigger rate and trigger point?
Trigger rate is the rate at which the payment stops covering interest. Trigger point is the balance level (often 100% to 105% of the original) at which the lender must act under the mortgage terms.
Is negative amortization allowed in Canada?
Yes, temporarily, on fixed-payment variables. OSFI has since 2024 required lenders to hold more capital against mortgages in negative amortization, which has pushed lenders to intervene sooner.
Are trigger rates still a risk in 2026?
With the policy rate at 2.25% and prime at 4.45%, most variable borrowers are far from trigger. The risk returns if prime rises two or more points. See Are trigger rates still a risk?.
Sources
- Financial Consumer Agency of Canada, variable-rate mortgages with fixed payments and trigger rates — checked 14 Sept 2026
- Office of the Superintendent of Financial Institutions, capital treatment of negatively amortizing mortgages (2024) — checked 14 Sept 2026
- Bank of Canada, policy rate and prime — checked 14 Sept 2026
This is general information for Canadian home buyers and sellers, checked against the sources listed above on the date shown. It does not constitute legal, tax, or mortgage advice. Because rules and rates change, confirm current figures with your lawyer or notary, your lender, or the government office that administers the tax before you rely on them.