One number, one formula
Mortgage Trigger Rate, Explained (with the formula)
A trigger rate is the interest rate where a fixed-payment variable-rate mortgage stops covering its own interest. This page shows the formula and one worked example to the cent.
What a trigger rate is
Most Canadian variable-rate mortgages keep the payment level while the interest rate floats with the market. When the rate rises far enough, the interest owed on the balance can exceed the payment itself — the point where that happens is the trigger rate. About three-quarters of Canadian variable-rate mortgages use this fixed-payment structure.
Bank of Canada Staff Analytical Note 2022-19 — Variable-rate mortgages with fixed paymentsThe formula
trigger_rate ≈ (payment × payments per year) ÷ balance
Payment is your current fixed payment, payments per year is typically 12 for a monthly schedule, and balance is your outstanding mortgage balance. The result is expressed as a percentage.
A worked example, to the cent
Take a $350,000.00 variable-rate balance at 3.45%, with 22 years (264 months) remaining. Under the monthly-compounding convention lenders use for variable mortgages, that produces a fixed payment of $1,893.74 a month.
Multiply $1,893.74 by 12 payments a year, and divide by the $350,000.00 balance: the trigger rate is 6.49%. If the variable rate rises above that, the payment no longer covers all of the interest.
Round numbers make the shape of the formula easier to see: a $400,000.00 balance with a $2,000.00 monthly payment has a trigger rate of 6.00% — ($2,000.00 × 12) ÷ $400,000.00.
Educational estimate, not financial or mortgage advice. Confirm figures with your lender or a licensed mortgage professional.
Who this affects
Trigger rates only apply to fixed-payment variable-rate mortgages. Adjustable-payment variable mortgages, where the payment moves with the rate, and fixed-rate mortgages, where the rate is locked for the term, are not affected.
What happens at the trigger point
Contracts vary. Some lenders raise the payment automatically once the trigger rate is crossed, so it covers interest again. Others let the shortfall add to the balance — negative amortization — until the balance reaches a contractual limit, at which point a payment increase or a lump-sum payment is usually required. Some borrowers also have the option to make a voluntary lump-sum payment before that point to reduce the balance and push the trigger rate back up.
Why this matters at renewal
If you hold a variable-rate mortgage and are renewing in 2026-27, check where your current rate sits relative to your trigger rate before you decide what to renew into. See whether the mortgage stress test applies to your move and build your renewal timeline to plan the rate-hold and negotiation window around your term end date.
Trigger rate FAQ
What is a mortgage trigger rate?
A trigger rate is the interest rate at which your entire fixed payment goes to interest, leaving nothing to reduce the balance. It applies to fixed-payment variable-rate mortgages — the common Canadian product where the payment stays level but the rate floats.
How do you calculate a trigger rate?
Multiply the payment by the number of payments in a year, then divide by the outstanding balance: trigger_rate ≈ (payment × payments per year) ÷ balance. On a $350,000.00 balance with a $1,893.74 monthly payment, that is 6.49%.
What happens if my variable-rate mortgage hits its trigger rate?
Depending on your lender's contract, crossing the trigger rate either raises your payment so it covers the new interest cost, or lets the shortfall add to your balance — negative amortization, where you owe more even while paying on time. Check your mortgage contract or ask your lender which applies.