What Is the Trigger Rate on a Variable Mortgage in Alberta?
Short answer
The trigger rate is the interest rate at which your fixed monthly payment on a variable-rate mortgage no longer covers all interest due. When your rate rises above the trigger rate, unpaid interest is added to your balance — negative amortization — and your lender will eventually require a higher payment or lump sum. It applies to fixed-payment VRMs, not adjustable-rate mortgages where payments move with prime.
The plain-English version
On a standard variable-rate mortgage with fixed payments, rising prime means more of each payment goes to interest and less to principal. Your amortization effectively stretches. The trigger rate is the point where even the entire payment covers only interest — nothing goes to principal, and eventually not all interest is covered.
Lenders monitor trigger rates and contact borrowers when they are approached or breached. Remedies may include increasing your payment, making a lump-sum principal payment, switching to a fixed rate, or refinancing. The exact trigger rate depends on your original rate, payment amount, and remaining amortization — it is not a single universal number.
Alberta-specific considerations
- Alberta borrowers who took variable mortgages at historically low spreads may hit trigger rates sooner if prime rises significantly — model your personal trigger point.
- Households relying on overtime or contract income should know their lender's policy before trigger rate contact — payment increases can strain tight budgets.
- At renewal, switching to a fixed rate or adjustable product with payment changes can avoid future trigger rate risk.
Example scenario
You have a $420,000 VRM with a $2,400 monthly payment set when your rate was 4.65%. As prime rises, your rate reaches 6.40% — near your trigger rate. At that point, roughly all $2,400 goes to interest on a monthly-compounding balance, and any further rate increase means interest not covered by your payment gets added to what you owe.
Common mistakes to avoid
- Assuming your payment will automatically increase when prime rises on a fixed-payment VRM — it often does not, until the lender intervenes.
- Ignoring lender letters about negative amortization or trigger rate approach.
- Confusing trigger rate with the stress test qualifying rate — they are unrelated concepts.
- Not knowing whether your variable product is a VRM (fixed payment) or ARM (adjusting payment).