Rates and interest
Trigger rate
On a fixed-payment variable mortgage, the rate at which your payment stops covering the interest and the balance starts growing.
On a fixed-payment variable mortgage, your payment stays the same when prime moves. What changes is the split between interest and principal. If rates rise far enough, interest takes up the whole payment. That point is your trigger rate.
Past it, unpaid interest is added to the balance and the mortgage grows. This is called negative amortization, and your lender will require you to raise your payment or make a lump-sum payment before it goes far. Most lenders also set a trigger point, a balance level that's often the original principal, which forces that conversation regardless.
Your trigger rate depends on your rate, your payment and your balance. Ask for it before you sign a fixed-payment variable product.
An adjustable-payment variable has no trigger rate, because the payment moves with the rate. The trade-off is that your budget has to move instead.
Related terms
Variable rate
A rate set as prime plus or minus a discount, which moves when prime moves while your discount stays locked for the term.
Prime rate
Each lender's own reference rate for variable lending, set with reference to the Bank of Canada's policy rate.
Amortization
The total time it would take to pay your mortgage down to zero at your current payment, usually 25 or 30 years in Canada.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
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