Trigger Rates: What Homeowners Need to Know

By Emma Caplan-Fisher | 8 minute read

If you have a variable-rate mortgage, there’s a good chance you’ve heard the phrase “trigger rate” and maybe felt uneasy about it.

A trigger rate is reached when rising interest rates eat up so much of your monthly payment that nothing’s left to reduce your principal. So, your entire payment goes toward interest, and your mortgage balance stops shrinking.

From March 2022 to July 2023, the Bank of Canada raised its overnight rate from 0.25% to 5%  a pace not seen since the 1990s with inflation targeting. By the end of November 2023, this caused up to 80% of variable-rate mortgages with fixed payments to reach their trigger rate.

While rates have since declined significantly, renewal pressure remains. This year, 3.1 million Canadian mortgages (52%) have come up for renewal by the end of 2027, with the steepest payment increases expected for those who borrowed at historically low rates in 2021–2022.

Understanding your trigger rate can mean the difference between being caught off-guard and having a plan before your lender comes calling.

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What Is a Trigger Rate?

A trigger rate is the interest rate at which a fixed mortgage payment no longer covers any principal repayment. When you hit your trigger rate, your entire monthly payment goes toward interest, and your mortgage balance stays exactly where it is.

Understanding how this happens requires knowing how a mortgage payment is normally split. Every month, part of your payment goes toward interest (the cost of borrowing), and part goes toward principal (the actual loan balance). As rates rise, the interest portion grows, and the principal portion shrinks. At the trigger rate, that principal portion reaches zero.

Hitting your trigger rate is a warning sign that your mortgage is no longer working the way it was designed to and that action may eventually be required.

How Trigger Rates Work

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With a fixed-payment variable-rate mortgage, your monthly payment stays the same even as the interest rate changes. When rates rise, more of each payment is consumed by interest, and less goes toward reducing your balance. At the trigger rate, that shift is complete: the full payment covers interest only.

Here’s a simple example. Say a homeowner in Hamilton, Ont., took out a $500,000 mortgage with a variable rate and a fixed monthly payment of $2,000. As rates climbed, more and more of that $2,000 went to interest. Once the rate reached the point where $2,000 was needed just to cover the month’s interest charges, they hit their trigger rate, and their mortgage balance stopped shrinking entirely.

Which Mortgages Are Most Affected by Trigger Rates?

Not every mortgage carries trigger rate risk. For example, fixed-rate mortgages aren’t affected: the rate is locked in for the term, so the split between interest and principal is predictable throughout.

As for variable-rate mortgages, there are two types in Canada, but only fixed-payment variable-rate mortgages are exposed to trigger rate risk when rates rise.

These keep payments the same while the interest rate fluctuates. According to the Bank of Canada, roughly three-quarters of all variable-rate mortgages in Canada have fixed payments.

Adjustable-rate mortgages automatically adjust the payment amount when rates change. Because the payment rises with the rate, the principal portion stays intact, meaning there’s no trigger rate concern in the same way.

If you’re not sure which type you have, check your mortgage agreement or ask your lender directly. Understanding your mortgage type is the first step in knowing whether trigger rates apply to you.

Trigger Rate Vs. Trigger Point

These two terms are related but distinct, and confusing them can lead homeowners to underestimate their situation.

Trigger rate is the interest rate (and warning) at which your payment covers interest only, with nothing going toward principal.

Trigger point is what comes next. Once you’ve passed your trigger rate, your mortgage balance may begin to grow. Your lender sets a maximum allowable balance, often tied to the original loan amount or the home’s appraised value. When the balance grows to hit that ceiling, you’ve reached your trigger point.

At the trigger point, your lender can require you to take action. This may mean increasing your regular payments, making a lump-sum payment or renegotiating your mortgage terms. Preparing for extra or higher payments in advance can be helpful.

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What Happens if You Hit Your Trigger Rate?

When you hit your trigger rate, your mortgage balance may stop declining. Instead of shrinking toward zero over time, it plateaus. Or, if rates have risen far enough, it starts to grow.

That growth is called negative amortization. It means the clock on paying off your home has effectively stopped or is running backwards. If the balance grows significantly, you may face higher required payments at renewal, a longer amortization period or difficulty refinancing your home.

Between July 2023 and June 2024, Canadian financial institutions implemented more than 8,000 relief measures for at-risk mortgage holders. This helped borrowers avoid more than $4 million in penalties and fees, much of which tied to lump-sum payments made to avoid negative amortization.

Hitting your trigger rate is not automatically a crisis. But the sooner you recognize it, the more options you have.

What Is Negative Amortization?

Negative amortization happens when a mortgage payment isn’t large enough to cover the interest charged for that period. The shortfall is added to the outstanding loan balance.

So, instead of your balance falling month by month, it rises. Over time, that means you owe more than you originally borrowed, the loan takes longer to pay off and you pay more interest over the life of the mortgage. 

The federal government addressed this risk directly in the Canadian Mortgage Charter, introduced in the 2023 Fall Economic Statement, which includes a provision requiring lenders to avoid charging interest on interest during periods of negative amortization.

But even with those protections, the underlying problem of a growing mortgage balance makes renewal, refinancing and long-term financial planning significantly harder.

How to Find Your Trigger Rate

Your trigger rate is specific to your mortgage. It depends on your original loan amount, amortization period, payment schedule and current balance. There’s no single number that applies to everyone.

Here’s how to find yours:

1. Check your mortgage documents. Your original mortgage agreement may include the trigger rate, or at minimum, the terms needed to calculate it. Look for the interest rate at which your payment would equal your monthly interest charge.
2. Log in to your lender’s online portal. Some Canadian lenders provide trigger rate information through their online banking platforms. Check your account details or mortgage summary, and if you don’t see it, call your lender directly.
3. Contact your lender or mortgage broker. Ask specifically: What is my current trigger rate? How close am I to reaching it? What happens if I reach my trigger point? Getting answers in writing gives you something concrete to plan around.

What Can Homeowners Do if They Are Close to Their Trigger Rate?

The most important thing homeowners can do is act early. The closer you get to your trigger rate, the fewer options you have, and the more leverage your lender has at renewal.

Here are the most common strategies:

1. Increase your regular payments. If your mortgage allows it, raising your monthly payment keeps more going toward principal and pushes the trigger rate higher. Check your mortgage agreement for the payment increase privilege available to you, as limits vary by lender.

    

2. Make a lump-sum payment. Variable-rate mortgages often allow annual lump-sum prepayments without penalty. According to mortgage prepayment guidance from nesto, most lenders set that annual limit at 10 to 20% of the original principal. Under the FCAC guideline, lenders are expected to waive prepayment penalties for borrowers making lump-sum payments specifically to avoid negative amortization.

3. Convert to a fixed-rate mortgage. Locking in a fixed rate eliminates trigger rate exposure for the term. Whether that makes financial sense depends on current rates and your timeline, so compare the numbers carefully before making the switch.

    

    

4. Talk to your lender or a mortgage broker. Your lender may offer options you haven’t considered. A broker can compare solutions across multiple lenders. Either way, having that conversation before the lender initiates it puts you in a stronger position.

    

5. Review your household budget. If higher payments are coming — whether through voluntary increases or lender-required ones — knowing what’s affordable now makes planning before renewal easier.

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Why Your Home Value Matters

Home equity, the difference between what your home is worth and what you owe, plays a big role in how much flexibility you have when dealing with trigger rate pressure.

Homeowners with significant equity generally find it easier to refinance or convert to a fixed-rate mortgage: lenders are more willing to work with borrowers who aren’t underwater on their homes. If equity has shrunk, say, because the balance has grown through negative amortization or because home prices have fallen in a local market, options narrow.

Knowing your home’s estimated value is a practical starting point for any of those conversations. Wahi’s Home Value Estimator can give you a clearer picture of where your property sits in today’s market, which matters whether you’re planning to stay, refinance or explore a move.

Should You Sell if You Hit Your Trigger Rate?

Hitting your trigger rate doesn’t automatically mean you should sell. For many homeowners, the right move is to work with their lender to stabilize the mortgage and wait for renewal.

That said, considering cash flow, renewal timing, mortgage balance, equity and long-term goals is key. Selling is worth exploring if payments have become genuinely unmanageable, renewal terms look prohibitive or you were already considering a move and your equity position is strong enough to make a sale worthwhile.

A Wahi REALTOR® can help you assess local market conditions, get a realistic picture of what your home might sell for and weigh that against your financial situation. Selling is one possible path, but it’s best considered as part of a broader housing and financial plan, not an automatic response to a difficult renewal conversation.

If you do decide to sell, it’s also worth understanding the details of selling your house with an existing mortgage, including how a mortgage discharge or payoff quote works.

What Buyers Should Know About Trigger Rates

Trigger rates aren’t just a concern for current homeowners. If you’re shopping for a mortgage, the type of product you choose will determine your exposure.

Before signing, ask your lender or broker whether the mortgage is a fixed-payment variable-rate product or an adjustable-rate mortgage, what your trigger rate would be at the current balance and amortization, and how payments would change if rates rose by 1 or 2%.

Building flexibility into your budget  so that a payment increase wouldn’t threaten your finances is sound planning regardless of which mortgage you choose.

According to current rate data from Ratehub.ca, the lowest available five-year variable rate was sitting at 3.45% as of June. Rates have moved sharply in both directions in recent years, and buyers who stress-test their budgets before committing are better positioned to weather future changes. 

Wahi’s Canadian housing market data can help you understand local conditions before you commit to a mortgage product.

Know Your Numbers Before Rates Create Pressure

Trigger rates are a feature of a specific type of mortgage product, and they can catch homeowners off-guard when rates move quickly. Homeowners who are best positioned to manage trigger rate pressure are those who understand their mortgage terms, know their numbers and act before their lenders require it.

If you have a fixed-payment variable-rate mortgage, find out your trigger rate. Review your mortgage documents, call your lender or speak with a broker. If you’re close, explore your options, whether that’s increasing payments, making a lump-sum payment or locking in a fixed rate.

And if you’re thinking about what your home is worth in the current market, understanding your equity position is a natural part of the same conversation. Wahi’s tools and local REALTOR® network are here to help you figure out your next step, whatever that looks like.

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