Two thresholds, often confused
The trigger rate is the interest rate at which your fixed payment covers only interest. The Financial Consumer Agency of Canada defines it as the rate at which your payment only covers interest costs; once you pass it, unpaid interest can be added to the balance, which is called negative amortization. The agency warns that a variable mortgage with fixed payments may be riskier than borrowers expect.
The trigger point is a separate, later threshold. It is reached when the growing balance exceeds the share of the home's value your lender will accept. A mortgage can sit past its trigger rate for some time before it hits the trigger point. At the trigger point, the federal regulator says, you will be required to act — raise payments, make a prepayment, or pay down the balance.
The trigger rate is a warning light. The trigger point is the forced stop.
How close are you, really?
For many recent borrowers, the honest answer is: not very. Consider a $500,000 fixed-payment variable mortgage over 25 years whose payment was set at 3.70% — prime 4.45% minus 0.75% — before the October increase. That payment is about $2,557 a month. Divide the annual payments by the balance and the trigger rate lands near 6.1%. The contract's rate is now 3.95%. That leaves roughly 2.2 percentage points of headroom, or about nine more quarter-point moves.
So for this borrower, the near-term cost is not a trigger event. It is the slow erosion described above — less principal repaid every month, and a larger balance at renewal than planned.
The picture is different for contracts whose payments were set when rates were far lower and never reset. Those borrowers may sit much closer to the line. The only way to know is to get the number from your lender: your trigger rate depends on your current balance, your payment and how your contract compounds interest.
