Mortgage term
Trigger rate
Definition
The interest rate at which a variable-rate mortgage's fixed monthly payment no longer covers the interest owed. When hit, the lender either raises the payment or (in some products) capitalizes interest onto the principal.
Trigger rates became a national story in 2022–2023 when the Bank of Canada raised rates 4.75% in 18 months. Many VRM holders hit their trigger rate and either had to raise payments significantly or watch their principal balance grow — 'negative amortization.'
At renewal, if you're coming off a VRM that hit trigger, you may be renewing a balance larger than what you started with.