By Trigger Rates Explained: What Happens When Your Variable Payment Stops Covering Interest
Your payment did not change on October 29. That is exactly the problem this article is about. When the Bank of Canada raised its policy rate to 2.50% on October 28, 2026 and the big banks moved prime to 4.70% the next day, every fixed-payment variable mortgage in Canada quietly re-split itself: more of the same payment now goes to interest, less to principal. Push that far enough and you reach the trigger rate — the point where your payment covers the interest and nothing else. Past it, your balance starts growing instead of shrinking. By the end of this article you will know the 30-second formula that estimates your own trigger rate, a worked example on a $500,000 mortgage, and the four moves lenders accept before you ever reach it — the fourth one is the one most borrowers never ask about.
The one formula that tells you how much room you have left
Here is the estimate lenders’ own math is built around, in its simple form:
Trigger rate (estimate) = (monthly payment x 12) / outstanding balance x 100
Try it with your own numbers right now — your payment and balance are both on your last mortgage statement. If you pay $2,457 a month on a $500,000 balance, your estimated trigger rate is (2,457 x 12) / 500,000 = about 5.90%. That is the contract rate at which your entire payment becomes interest. Your contract rate today is prime minus your discount: at prime 4.70% with a typical prime-minus-1.00% discount, you are paying 3.70% — so you have roughly 2.20 percentage points of headroom, or about nine more quarter-point hikes, before the estimate says you hit the line. Treat the formula as a dashboard gauge, not a legal figure: lenders compound semi-annually or monthly and your exact trigger rate is in your contract, and your lender must tell you what it is if you ask. But the gauge tells you whether you are near the line or far from it, and that is the decision that matters this month.
Knowing the distance is step one. Step two is understanding what actually happens on the day the line is crossed — because it is not what most borrowers picture.
What happens the day your payment stops covering interest
| Stage | What it means | What you see |
|---|---|---|
| Below trigger rate | Payment covers all interest plus some principal | Balance falls, but more slowly as rates rise; amortization stretches |
| At trigger rate | Payment covers interest only — principal repayment is $0 | Balance stands still even though you pay every month |
| Above trigger rate | Payment does not cover interest; the shortfall is added to your balance (negative amortization) | Balance grows month by month |
| Trigger point | The contract limit — often when the balance reaches the original amount borrowed, or a set percentage of it | Lender requires action: higher payment, lump sum, or new amortization terms |
Some lenders act even earlier. RBC, for example, states that if a rising prime rate produces a triggering interest rate — where the regular payment no longer covers the interest — the mortgage payment automatically increases to cover the accrued interest, and the borrower gets a payment change notice. Other lenders let the balance grow until the trigger point in the contract forces the conversation. Either way, the outcome is the same family of choices: pay more each month, pay a lump sum, extend or reset the amortization, or convert the mortgage. The worst version of this conversation is the one that happens by letter, on the lender’s timetable. The best version happens now, while it is still hypothetical — and that starts with knowing which kind of variable mortgage you actually hold.
Only one kind of variable mortgage has a trigger rate — check which one is yours
Canada sells two different products under the word “variable,” and only one of them can hit a trigger rate:
Fixed-payment variable (VRM). Your payment is set in dollars and does not move when prime moves. A rate rise changes the split inside the payment, not the payment itself. This is the product with a trigger rate — and it is the common one: Bank of Canada research puts roughly 75% of Canadian variable mortgages in this fixed-payment family.
Adjustable-rate mortgage (ARM). Your payment recalculates every time prime changes, so your amortization stays on schedule. There is no trigger rate, because the payment always covers the interest — you feel every hike immediately in your bank account instead, as borrowers with adjustable payments did on October 29 when prime went to 4.70%.
HELOCs sit outside both: interest is charged on what you draw, usually at prime plus a spread, and the October hike raised that cost the day it took effect. If you are not sure which product you hold, your mortgage statement or your lender’s app will say whether your payment is fixed for the term. That one fact decides whether the rest of this article is urgent or just useful — and it decides which of the four moves below are even available to you.
The $500,000 example: watching the split change as prime climbs
Take a $500,000 fixed-payment variable mortgage, payment fixed at $2,457 a month, priced at prime minus 1.00%. The payment never changes in this table — only the split inside it does. Interest figures are monthly estimates using the contract rate divided by 12, so they are illustrations, not lender statements.
| Prime | Contract rate (prime – 1.00%) | Interest portion of $2,457 payment (est.) | Principal portion (est.) | Status |
|---|---|---|---|---|
| 4.45% (before Oct 28) | 3.45% | About $1,438 | About $1,019 | Paying down normally |
| 4.70% (today) | 3.70% | About $1,542 | About $915 | Amortization stretching |
| 5.70% | 4.70% | About $1,958 | About $499 | Half the payment is progress |
| 6.90% | 5.90% | About $2,457 | $0 | Trigger rate reached (estimate) |
Read the middle rows again, because they are where most borrowers actually live: nobody’s balance grows at today’s rates, but the October hike alone moved about $104 a month from principal to interest on this mortgage — about $1,250 a year of progress quietly redirected, with no letter, no new payment and no warning beyond a longer amortization on the statement. That is the real cost of a trigger-rate world long before anyone hits the trigger itself. It is also why the December 9, 2026 Bank of Canada decision matters to variable holders even if the Bank holds at 2.50%: every future hike restarts this arithmetic. Our explainer of the October rate decision and what it changed walks through the hike itself, and our guide to mortgage rates in Canada today shows how to read the rate table your lender prices from.
So what can you actually do about it, before a letter arrives? Four moves, in the order lenders usually prefer them.
The four moves that push your trigger rate further away
1. Raise the payment yourself, by a little, now. Every extra dollar of payment raises your estimated trigger rate, because the formula’s numerator is your payment. Adding $100 a month to the example above lifts the estimate from about 5.90% to about 6.14% — and the extra $100 goes entirely to principal today, while rates are lower. Many lenders let you raise the payment by 10% to 20% per year without penalty; check your prepayment privileges.
2. Make a lump-sum prepayment. A lump sum shrinks the denominator — the balance — which raises the trigger rate and cuts the interest charged on every future payment. $10,000 off a $500,000 balance lifts the same estimate to about 6.02% and saves interest from the day it lands.
3. Shorten the damage at renewal instead of sleepwalking through it. If your amortization has stretched from 25 years toward 30, renewal is where the lender resets the payment to the remaining schedule — which can mean a sharp payment jump in one step. Planning that jump a year early, as our mortgage renewal playbook lays out, beats discovering it in a renewal letter.
4. Ask your lender for your exact trigger rate — in writing. The estimate in this article tells you the neighbourhood; your contract holds the exact figure, including where your trigger point sits. Lenders will state it on request, and knowing “my trigger rate is X and my trigger point is Y” turns a vague worry into two numbers you can monitor each time the Bank of Canada meets. Almost nobody asks. Be the borrower who does.
What not to do: do not break a fixed-payment variable mortgage to “escape” the trigger rate without pricing the break — you would be trading a distant, manageable risk for an immediate penalty and a new rate set in today’s market. Run the affordability math the way lenders do, with the 32% and 39% rules, before changing products.
Common mistakes variable holders make after a hike
The first is assuming a payment that did not change means nothing changed — the split changed, and your amortization with it. The second is confusing the trigger rate with the trigger point: the rate is where principal repayment stops; the point is the contract limit where the lender forces action, and the second is the deadline that matters. The third is waiting for the lender to raise the payment automatically and treating that higher payment as the new normal without checking whether a lump sum or a small voluntary increase would have been cheaper. The fourth is reading US rate news and applying it directly: your mortgage prices off the Bank of Canada’s policy rate and your lender’s prime — 2.50% and 4.70% today — not the Federal Reserve.
Frequently asked questions
What is a trigger rate, in plain language?
It is the interest rate at which your fixed mortgage payment covers the interest due and nothing else — zero dollars go to paying down what you owe. Above it, your payment does not even cover the interest, and the shortfall is added to your balance. It applies only to fixed-payment variable mortgages, not to adjustable-rate mortgages whose payments move with prime.
How do I calculate my own trigger rate?
Use the estimate: (monthly payment x 12) / outstanding balance x 100. A $2,457 payment on a $500,000 balance gives about 5.90%. It is a rule-of-thumb gauge — compounding differs by lender — so ask your lender for the exact contract figure.
What is the prime rate in Canada today, November 15, 2026?
4.70% at the big banks, after the Bank of Canada raised its policy rate by 25 basis points to 2.50% on October 28, 2026. RBC’s own rate page lists its prime at 4.700%. The next Bank of Canada decision is December 9, 2026.
What happens if my balance passes the trigger point?
The trigger point is the limit written into your contract, often the original amount you borrowed. Past it, the lender requires action: a higher payment, a lump-sum payment, a change to your amortization, or converting the mortgage. Some lenders, such as RBC, raise the payment automatically once the payment stops covering interest.
Does an adjustable-rate mortgage have a trigger rate?
No. An adjustable payment rises and falls with prime, so it always covers the interest and keeps the amortization on schedule. You feel hikes immediately in the payment instead — as adjustable borrowers did when prime rose to 4.70% on October 29, 2026.
Can I avoid the trigger rate without breaking my mortgage?
Yes. Raising your payment voluntarily and making lump-sum prepayments both push the trigger rate further away — the first raises the payment in the formula, the second lowers the balance. Both usually fit inside your existing prepayment privileges, with no penalty and no new mortgage.
Bottom line: At prime 4.70%, a typical fixed-payment variable mortgage is stretching its amortization, not growing its balance — but the distance to the trigger rate is a number you can compute in 30 seconds: (payment x 12) / balance. On $500,000 at $2,457 a month it is about 5.90%, roughly nine quarter-point hikes away. Raise the payment a little or pay a lump sum and the line moves further off. Send this to someone whose payment “didn’t change” after the October hike. Not financial advice. For education purposes only.
Read next: Mortgage Renewal in 2026: 7 Moves Before You Sign the Bank’s First Offer
