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Trigger Rate

A trigger rate is the interest rate at which your regular mortgage payment no longer covers the interest due.

This applies to borrowers who have variable-rate mortgages with fixed payments.

When the Bank of Canada raises interest rates significantly (e.g., 275+ basis points), many borrowers will see their variable rate rise to the trigger rate. At that point, most variable-rate lenders will then increase the payment to ensure all interest is paid.

At other lenders, if rates go high enough, the payment might not even cover the interest. Those lenders may allow the interest to keep building (causing negative amortization) until the borrower reaches a "trigger point". The trigger point varies, but 105% of the original loan amount is one common threshold. Once the trigger point is reached, the lender then raises the payment.

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