ARM vs FPV Mortgage in Canada: What a Trigger Rate Actually Means for Your Payment

"Variable rate mortgage" gets used as if it means one thing in Canada, but two very different products hide under that label, and the difference matters enormously once rates move.

An adjustable-rate mortgage, ARM, is the version most people picture: the rate moves, and your payment moves with it. A fixed-payment variable mortgage, FPV, the product most Canadian big banks actually sell as their default variable option, keeps your payment the same when rates rise. Instead, the split between interest and principal inside that same payment shifts, and if rates rise enough, you can end up in negative amortization, where your balance grows instead of shrinks.

This post explains the mechanical difference, what a trigger rate is, and walks through a real worked example of what happens to an FPV mortgage when rates rise significantly.

The Core Difference

What a Trigger Rate Is

On an FPV mortgage, your payment is locked in at whatever rate you started at. As your rate rises, more of that fixed payment goes to interest and less to principal. The trigger rate is the point where the interest portion alone would exceed your entire fixed payment.

Past that point, your payment no longer covers even the interest owed, and the shortfall gets added to your balance instead of paid down. Your mortgage balance starts growing rather than shrinking, even though you are making every payment on time. This is negative amortization, and it is the single most important thing to understand about holding an FPV mortgage through a rising rate environment.

A Worked Example

Take an illustrative $500,000 mortgage balance at a 4.5% starting rate, 25-year amortization, standard Canadian semi-annual compounding. Suppose the rate on an FPV term is pushed up to 12%.

The payment stays at $3,263 a month, exactly what it was before the rate increase. But once the rate crosses the trigger point of roughly 9.09% in this example, the $4,275 of interest owed each month exceeds the entire payment. The shortfall, $1,012 a month, gets added to the balance instead of paid down. The mortgage is growing by just over $1,000 every month despite every payment being made on time and in full.

An ARM on the same balance and rate move would behave differently. Instead of the balance growing, the payment itself would rise to cover the higher interest cost, keeping the loan on its original amortization schedule. You feel the rate increase immediately in your payment rather than in a quietly growing balance. Neither outcome is automatically better, they are different trade-offs between payment stability and balance stability, and these figures are illustrative, not a specific real mortgage.

How to Know Which One You Have

Not every lender uses the terms ARM or FPV directly, and the distinction is not always obvious from your mortgage statement alone. If your payment has stayed identical through recent rate changes while your posted variable rate has moved, you very likely have an FPV mortgage. If your payment has moved along with rate announcements, you likely have an ARM.

When in doubt, ask your lender directly whether your product has a trigger rate and, if so, what it currently is. This is one of the most consequential things a variable-rate borrower can not know about their own mortgage.

For the broader fixed versus variable decision before you even choose a mortgage type, see variable vs fixed rate mortgage for Canadian rental properties.

Modeling Your Own Term

Rental Analyst lets you tag a mortgage term as fixed, ARM, or FPV, both for your current mortgage and for a modeled future renewal. An FPV term correctly holds payment flat and allows the balance to rise past the trigger rate rather than silently applying ARM-style recalculation, and surfaces a trigger rate warning once the threshold is crossed.

This post is for informational purposes only and does not constitute financial, legal, mortgage, or tax advice. The worked example uses composite, illustrative figures. Trigger rates, terms, and product availability vary by lender. Confirm your specific mortgage type and trigger rate with your lender before making any decision.