Is negative amortization the same as the trigger rate?

They are closely linked. The trigger rate is the interest rate at which your payment exactly covers the interest; once rates rise above it, negative amortization can begin and the balance starts to grow.

Which mortgages can experience negative amortization?

Fixed-payment variable-rate mortgages are the main type at risk, because the payment stays constant while the rate floats. Adjustable-rate mortgages avoid it because the payment itself rises with the rate.

How do I stop my mortgage from growing?

You can increase your regular payment so it covers the full interest plus principal, make a lump-sum prepayment, or convert to a fixed-rate mortgage. Your lender will usually contact you when you near a trigger point.

Mortgage Glossary

What is Negative Amortization?

Negative amortization happens when your mortgage payment is no longer large enough to cover the interest you owe, so the unpaid interest is added to the principal and your balance grows. In Canada it typically occurs on fixed-payment variable-rate mortgages after rates rise past the trigger rate. Instead of shrinking, the loan gets bigger.

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Quick answer

Also known as: negative amortization, negative am, growing balance

Key points

Negative amortization means the balance grows because the payment does not cover the interest.
It mainly affects fixed-payment variable-rate mortgages in Canada.
It begins once rising rates push you past your trigger rate.
Lenders set a trigger point where they require you to act, often by increasing payments.
Options to fix it include a larger payment, a lump-sum prepayment, or switching to a fixed rate.

Negative Amortization explained

Negative amortization is the opposite of normal repayment. Under a standard amortizing mortgage, every payment covers all the interest due plus a slice of principal, so the balance steadily falls. With negative amortization, the payment falls short of the interest charge, the shortfall is tacked onto the principal, and you end up owing more than you did before.

In Canada this mostly affects fixed-payment variable-rate mortgages, where the payment stays the same even as the interest rate floats. When rising rates push the interest portion above the fixed payment, you reach the trigger rate and the loan can begin to amortize negatively. Lenders usually require action once the balance hits a trigger point, such as a higher payment, a lump sum, or converting to a fixed rate.

What a Negative Amortization is for

Negative amortization is not a product anyone chooses on purpose; it is a side effect of fixed-payment variable mortgages that keep payments steady when rates climb. The steady payment offers short-term budget stability, but the trade-off is that the balance can creep upward during periods of sharply rising rates rather than falling on schedule.

How it can help you

Knowing about negative amortization helps Canadian borrowers spot when their variable mortgage has stopped making progress and act before the balance balloons. Recognising your trigger rate lets you increase payments or refinance in time. Lenderoo shops 40+ lenders free, so you can compare variable and fixed options to avoid getting stuck in a growing-balance situation.

When it comes up

Negative amortization becomes a live concern when the Bank of Canada raises rates several times during your term. A borrower on a fixed-payment variable mortgage might notice their statement shows interest exceeding their payment, signalling they have crossed the trigger rate and need to make a change.

Example: a payment that no longer covers interest

Imagine a fixed-payment variable mortgage of $500,000 with a monthly payment of $2,500. When rates were low, that payment covered all the interest plus about $400 of principal.

After several rate hikes, the monthly interest charge climbs to $2,700. Your payment is still $2,500, so it falls $200 short. That $200 is added to your principal, pushing the balance to $500,200. Each month the gap continues to grow the loan instead of shrinking it until you raise the payment or pay down a lump sum.

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Questions & answers

Negative Amortization: frequently asked questions

Common questions Canadians ask about negative amortization.

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Related mortgage terms

Trigger Rate

The point at which a variable-rate mortgage payment no longer covers the interest owed.

Read definition

Variable-Rate Mortgage

A mortgage whose interest rate moves up or down with the lender's prime rate over the term.

Read definition

Adjustable-Rate Mortgage (ARM)

A variable mortgage where the payment changes as the prime rate changes.

Read definition

Amortization

The process of paying off a mortgage over time through regular blended payments of principal and interest.

Read definition

Principal

The original amount borrowed, excluding interest.

Read definition

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Mortgage Glossary

What is Negative Amortization?

Find my best mortgage Back to glossary

Quick answer

Also known as: negative amortization, negative am, growing balance

Key points

Negative amortization means the balance grows because the payment does not cover the interest.
It mainly affects fixed-payment variable-rate mortgages in Canada.
It begins once rising rates push you past your trigger rate.
Lenders set a trigger point where they require you to act, often by increasing payments.
Options to fix it include a larger payment, a lump-sum prepayment, or switching to a fixed rate.

Negative Amortization explained

What a Negative Amortization is for

How it can help you

When it comes up

Example: a payment that no longer covers interest

Imagine a fixed-payment variable mortgage of $500,000 with a monthly payment of $2,500. When rates were low, that payment covered all the interest plus about $400 of principal.

Have a question about negative amortization?

Lenderoo shops 40+ lenders for free and matches you with a mortgage professional who explains every term — and finds your best rate.

Get pre-approved free Talk to an expert

Questions & answers

Negative Amortization: frequently asked questions

Common questions Canadians ask about negative amortization.

Keep learning

Back to full glossary

Understand your mortgage with confidence

Lenderoo shops 40+ lenders for free and pairs you with a mortgage professional who keeps the jargon simple — and gets you a great rate.

Find my best mortgage Explore the glossary