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The trigger rate is the interest rate at which a variable-rate mortgage with a fixed payment amount no longer covers the full interest owed for the period — meaning $0 of each payment would go to principal, and any further rate increase causes a shortfall that gets added to the balance.
This applies specifically to static-payment variable-rate mortgages, where the dollar payment stays flat and the split between interest and principal shifts as the rate floats. As prime rate rises, a larger share of each fixed payment goes to interest and a smaller share to principal — until, at the trigger rate, the entire payment is consumed by interest with nothing left for principal.
If the rate rises past that point, the shortfall doesn’t just disappear — it’s added onto the mortgage balance, a dynamic called negative amortization. Canadian lenders generally monitor for this and reach out to affected borrowers before or once the mortgage reaches its trigger point.
Static-payment VRMs only: an adjustable-rate mortgage, where the payment itself moves with prime, isn’t exposed to a trigger rate in the same way.
Lender monitoring and outreach: Canadian lenders typically track borrowers approaching or past their trigger rate and reach out proactively about options.
Distinct from trigger point: the trigger rate is a rate threshold; the related dollar-balance threshold is the trigger point.
Moves with prime: because it's a function of the original payment and principal, the trigger rate itself doesn't change, but how close a mortgage sits to it moves every time prime rate changes.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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