What Is a Variable Mortgage ‘Trigger Rate’ — and Why It’s Less Scary in 2026
On a fixed-payment variable mortgage, there’s a rate where your payment stops paying down principal
What does a variable-rate ‘trigger rate’ actually mean?
The trigger rate is the point where your fixed monthly payment covers only interest and pays down none of the principal.According to the Bank of Canada (2022), this applies only to fixed-payment variable mortgages (VRMFP), which make up roughly 75% of Canadian variable mortgages. Above the trigger rate, the fixed payment no longer even covers interest, and the unpaid interest is added to the balance — known as negative amortization.
Sources: Bank of Canada (trigger-rate research and policy rate); FCAC / canada.ca (trigger rate and negative amortization definitions); OSFI.
The fast rate hikes of 2022–2023 cost a lot of variable-rate borrowers sleep — their payment hadn’t changed, but the statement showed almost all of it going to interest. Behind that are two concepts: the trigger rate and the trigger point. The good news is that by 2026, with rates well down, the risk is far smaller than it was. Here’s the full picture, and what you can do.
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First, two kinds of variable — only one has a trigger rate
ℹ️Rule-of-thumb note: ‘trigger rate ≈ annual payment ÷ balance’ is a simplified estimate to give you a feel, not the exact contract math (lenders compounding semi-annually or monthly will differ). For the precise figure, ask your lender.
Trigger rate: where payment covers only interest
Trigger point: balance grows past the original principal
✅The trend is your friend: according to the Bank of Canada, the policy rate has fallen from about 5% at the 2023 peak to 2.25% in June 2026. For fixed-payment variable holders, that means more of each payment returns to principal and new negative amortization has largely stopped.
2026: rates have fallen, risk has eased
What you can do: four options
Frequently Asked Questions
Could today’s rates still hit my trigger rate?
For most borrowers, no. According to the Bank of Canada, the June 2026 policy rate is 2.25%, well below the ~5% peak of 2023. Trigger-rate risk peaked when rates peaked; with rates down, most fixed-payment variable mortgages now sit below their trigger rate again.
What’s the difference between trigger rate and trigger point?
The trigger rate is about a rate level — where the payment stops reducing principal. The trigger point is about a balance level — when the balance grows past what you originally borrowed. You hit the trigger rate first; the trigger point comes only after sustained operation above it.
Does an adjustable-payment variable mortgage have a trigger rate?
No. An ARM recalculates the payment whenever the rate moves, so it always covers interest plus scheduled principal — there’s no shortfall and therefore no trigger rate. The trigger rate only affects fixed-payment (VRMFP) mortgages.
Should I convert to a fixed rate now?
It depends. Converting locks your payment and removes trigger-rate risk, but you give up the benefit of any further rate cuts. With rates already down in 2026, it’s a genuine trade-off with no one-size answer — weigh your balance, risk tolerance and plans, and run the numbers with a mortgage professional if unsure.
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