The short version
- In a variable mortgage with a fixed payment, a rising prime changes what the payment is made of before it changes the payment itself: more goes to interest, less to principal.
- The trigger point is where the fixed payment covers interest only. Past it, lenders either raise the payment or let the balance grow, depending on the contract.
- Where your trigger point sits depends on your starting price, your amortization and your balance, and it is written in your mortgage documents.
- A longer amortization taken when borrowing costs were very low sits closer to its trigger point, as the Bank of Canada's own staff example shows.
- The Bank of Canada decision is on 28 October. Knowing your trigger point before the announcement is easier than finding it after.
A fixed payment on a moving mortgage
Most people picture a variable mortgage as a payment that moves with prime. Many do not. A large share carry a payment that stays put while the split between interest and principal moves underneath it.
The Bank of Canada described the structure in a staff analytical note. For a variable mortgage with fixed payments, the amount is set at the start of the contract and stays the same for the term; the interest portion changes with prime, and whatever is left goes to principal. When prime rises, the interest portion grows and the principal portion shrinks while the total stays fixed. The same note said about three-quarters of variable mortgages in Canada carry fixed payments.
That design feels calm. The payment on your statement does not change after each announcement, so it is easy to assume nothing is happening. Something is: your balance is coming down more slowly than the schedule you were shown.
What the trigger point is
The Bank of Canada's staff note defines the trigger point as the level at which the interest portion of the payment equals the whole payment, so no principal is being repaid. Each borrower has an individual one, which the note says is specified in the mortgage contract.
Past that level, the interest owing each month is more than the payment. The staff note describes what lenders then do. Some automatically raise the payment so that it keeps covering interest. Others allow what it calls negative amortization, where the balance grows from month to month. Some contact borrowers before the trigger point is reached and offer options such as switching to a fixed term or making a lump-sum payment.
An illustration, with the arithmetic shown
These numbers are our own, they are illustrative, and your contract controls. Take a $500,000 mortgage over 25 years that starts at 3.95% variable. Prime is 4.45% in the Bank of Canada's published series, so that is a modest discount. Variable mortgages compound monthly, and the starting payment works out to about $2,625 a month.
At that payment, the interest portion would equal the whole payment only if the cost of borrowing reached about 6.30% on the original balance. A quarter-point hike on Wednesday would move a 3.95% mortgage to roughly 4.20%. That is a long way from 6.30%, and the balance falls over time, which pushes the trigger point higher still.
Now compare the Bank of Canada's own example. Its note describes a mortgage taken with a 30-year amortization at 1.5%, which it says would have a trigger point of 4.2% at origination, and estimates that the monthly payment would have risen by about 20% by the end of October 2022 if the lender raised it to cover interest. Same structure, very different distance to the trigger, because the starting price was low and the amortization long.
- Longer amortization means a smaller payment, which means a lower trigger point.
- A low starting price means the payment was set low, so there is less room.
- A bigger balance repaid raises the trigger point, which is why mortgages that have paid down are safer than they look.
What to ask before the 28 October announcement
You do not need to predict the Bank of Canada to prepare. You need four answers, and your lender or Mortgage Broker can usually provide them from the contract.
- Do I have fixed payments or variable payments? If the payment already moves with prime, there is no trigger point to reach.
- What is my trigger point today? Ask for it in writing, based on your current balance.
- What does my lender do when it is reached? Raise the payment, let the balance grow, or contact me first. The contracts differ.
- Can I convert to a fixed term, and on what terms? Many variable contracts allow it. The price offered at that moment is whatever the market is offering then, so it helps to know the option exists before it is needed.
If a payment increase would strain your budget, add a second column to the plan: what you would do. Lump-sum payments, if your contract allows them, move the trigger point up. Our article on prepayment privileges explains the limits. And if renewal is close, the 120-day window gives you time to compare.
What this does not tell you
It does not predict what the Bank of Canada will do on 28 October. Economists quoted by Canadian Mortgage Trends and Bloomberg have been split, with several banks changing their calls after the 19 October inflation figures. The consensus in the survey Bloomberg cited still pointed to a hold.
It also does not mean a variable mortgage is the wrong choice. It means the choice comes with a mechanism worth knowing. Someone with a short amortization, a large down payment and a lender that raises payments early may never feel any of this. Someone at the opposite end may feel it sooner. A conversation about which one you are takes about ten minutes.
Nearly thirty years in Canadian financial services, based in Waterloo Region and working across Ontario. Most people are handed a product — you deserve a plan.
Descriptions of how fixed-payment variable mortgages work are from the Bank of Canada staff note linked below; the worked example uses our own arithmetic with monthly compounding and is illustrative only. Everything here is general information, subject to full qualification, lender approval and final terms. Nothing here predicts what the Bank of Canada, any lender or any housing market will do.
Sources: Bank of Canada — Staff Analytical Note 2022-19, Variable-rate mortgages with fixed payments: Examining trigger rates (Murchison and teNyenhuis, November 2022) · Canadian Mortgage Trends (Bloomberg) — Bank of Canada hike bets grow among economists, traders, 19 October 2026 · Bank of Canada — Key interest rate schedule