Mortgage Trigger Rate Explained: What It Means for Your Variable Mortgage

A variable-rate mortgage with fixed payments keeps your payment the same when rates move; what changes is how much of it goes to interest. The trigger rate is the rate at which all of it does. The FCAC defines it as “the interest rate at which your mortgage payment only covers interest costs. When you reach your trigger rate, none of your payment goes toward paying down the principal.” In November 2022, Bank of Canada staff estimated that about three-quarters of variable-rate mortgages in Canada had fixed payments. This page, part of the mortgage rates hub, explains how the trigger rate works, how to find yours and what happens if rates go past it.

Variable mortgages with adjustable payments work differently: in the FCAC’s words, “with adjustable payments, the amount of your payment changes if the interest rate changes.” The fixed vs variable mortgage guide compares the two.

How the payment split changes as rates rise

How to calculate your trigger rate

Your mortgage documents state how your rate is compounded; how to calculate mortgage interest explains the difference.

• Rate compounded monthly: trigger rate = payment × payments per year ÷ balance.
• Rate compounded half-yearly, monthly payments: trigger rate = 2 × ((1 + payment ÷ balance)^6 − 1).

Where your lender states it

You don’t have to work it out yourself. The disclosure rule, from the Financial Consumer Protection Framework Regulations (s.41) and FCAC, is summed up below; for a loan whose payment “is not adjusted automatically to reflect changes in the annual interest rate”, the disclosure must give “the triggering annual interest rate above which the amount paid under a scheduled instalment payment on the initial principal does not cover the interest due on the instalment payment” and “the fact that negative amortization is possible.”

• It applies to a variable-rate mortgage whose payment isn't adjusted automatically when the rate changes.
• At the trigger rate the payment only covers interest, and none of it pays down the principal.
• A bank's initial disclosure must state the trigger rate and that negative amortization is possible.
• Once the trigger rate is reached, the lender may require you to increase your payments, make extra payments to cover the excess interest, or switch to a fixed rate.
• Where the lender allows it, the unpaid interest is added to your balance (negative amortization), and over time you could owe more than the home is worth.
• The trigger point is different: it's reached when your balance grows past the lender's limit relative to your home's purchase value, and then you must adjust your payments, make a prepayment or pay off the balance.

CIBC, for example, tells customers that “the trigger rate is set out in your mortgage disclosure documents.”

What sets it

Bank of Canada staff note that “each borrower with a variable-rate mortgage with fixed payments is subject to an individualized trigger rate” and that “the trigger rate does not depend on the size of the loan.” At origination, it depends on the rate the payment was set at and the amortization: a payment set at a very low rate, spread over a long amortization, leaves little room above the starting rate.

What happens when rates pass the trigger rate

According to the Bank of Canada’s analysis, “Canadian lenders take different approaches”:

• “Some lenders will automatically increase the mortgage payment so that it continues to cover the interest portion of the payment.”
• “Other lenders allow for negative amortization, where the interest payment is permitted to exceed the total mortgage payment.”
• “Some lenders contact borrowers before they reach their trigger rate and offer options such as” switching to a fixed-rate mortgage or making a lump-sum payment.

Where the lender allows it, the FCAC explains, “your bank will generally add the unpaid interest to the balance you owe on your mortgage. This brings your mortgage into negative amortization,” and “you could even owe more money than the value of your home over time.” The negative amortization page covers how that balance grows.

Trigger rate vs trigger point

The FCAC draws the distinction this way: “Trigger rate differs from trigger point: hitting your trigger point means your mortgage balance has grown beyond the lender’s acceptable ratio for the amount of equity you need to hold vs. the purchase value of your home.” Once there, “you will be required to adjust your payments, make a prepayment, or pay off the balance of the mortgage.”

Each lender sets its own limit in the mortgage documents. CIBC calls it the Designated Amount: it “is set out in your mortgage disclosure documents, and at CIBC is usually 105% of the principal amount at origination or renewal”, and “if the principal amount of your mortgage exceeds the Designated Amount, the lender will require you to take steps to reduce the principal amount.”

On a mortgage of $450,000 at origination with a limit of 105% of the original principal, the trigger point would be reached when the balance passed $472,500. The trigger point options page covers what borrowers can do at that stage.

Options at or near the trigger rate

The FCAC lists what lenders may require once a trigger rate is reached: “increase their payments, make additional payments to cover excess interest costs or change their mortgage to a fixed interest rate mortgage.” In practice the choices are:

The FCAC notes that closed mortgages may allow extra payments within a “prepayment privilege”, and that these “vary from lender to lender.” If you are at risk of mortgage default and working with your bank on a solution, FCAC expects the bank to offer relief measures, and among them: Prepayment penalties can be waived on a lump-sum payment made to avoid negative amortization, and when you sell your primary residence. The recession planning guide lists the rest.

Breaking a closed variable-rate mortgage early: On a closed variable-rate mortgage the penalty is typically 3 months' interest. See how mortgage penalties are calculated.

The 2022-2023 rate increases

Trigger rates became a widespread issue when the Bank of Canada raised its policy rate from 0.25% before March 2, 2022 to 5.00% on July 12, 2023. Bank of Canada staff estimated in November 2022 that about 50% of variable-rate, fixed-payment mortgages, “nearly 13% of all Canadian mortgages”, had already reached their trigger rate, and that mortgages originated or renewed in 2021, at extremely low rates and often with long amortizations, would tend to reach it earlier. The policy rate has since come down to 2.25% (announced October 29, 2025); see the Bank of Canada policy rate, the prime rate and interest rate forecasts for where rates stand now.

Keeping a distance from your trigger rate

• Know the number. It is in your disclosure documents; recalculate it after any payment change.
• Pay more than the minimum. A higher payment pushes the trigger rate up, as the formula shows.
• Consider adjustable payments if a steady payment matters less to you than a steady amortization.
• Watch rate announcements. The Bank of Canada announces its policy rate decisions on eight fixed dates a year. The Bank of Canada policy rate page lists this year’s dates.

Related pages

• Why is my mortgage payment going up?
• Is a variable-rate mortgage worth the risk?
• Variable mortgage rates
• Paying off a mortgage early