Mortgage Trigger Rate

Fixed-payment variable-rate mortgages keep your monthly payment the same even when rates change — only the principal/interest split shifts. As rates rise, more of each payment goes to interest, less to principal. The trigger rate is the rate at which 100% of the payment covers interest only, with $0 of principal reduction. If rates rise above the trigger rate, the payment is no longer enough to cover the interest accrued each month. The unpaid interest gets added to the principal — a process called negative amortization. Lenders won't let this run indefinitely; once you hit the trigger rate (or a related trigger point shortly above it), they require one of three actions: increase your payment, switch to a fixed-rate mortgage, or refinance with extended amortization. During the 2022–2023 rate-hike cycle, many fixed-payment VRM holders hit their trigger rate. The lesson: variable mortgages require attention. If you choose one, understand whether it's fixed-payment or adjustable-payment, and budget for higher payments if rates rise.