This calculator determines the Trigger Rate for Variable Rate Mortgages (VRM) with fixed payments. This is the critical interest rate threshold where your regular payment amount covers only the interest, with no principal repayment.
In the context of Variable Rate Mortgages (VRM) that possess static or "fixed" payment schedules, the Trigger Rate is a specific mathematical threshold. Unlike Adjustable Rate Mortgages (ARM) where your payment fluctuates immediately with the prime rate, a VRM with fixed payments keeps your monthly cash flow stable even as rates rise.
However, as interest rates increase, a larger portion of your fixed payment is allocated to interest rather than principal. The Trigger Rate is the exact interest rate percentage at which 100% of your payment goes toward interest. Once this rate is exceeded, your payment no longer covers the interest accrued, leading to a state often called the "Trigger Point," where your outstanding balance may begin to increase (negative amortization).
How to Calculate Trigger Rate
The calculation for the trigger rate is purely mathematical and relies on the relationship between your fixed payment capacity and your outstanding debt load. The formula used is:
Example Calculation:
If you have a remaining balance of 500,000 and a fixed monthly payment of 2,500:
Annualized Payment: 2,500 × 12 = 30,000
Balance: 500,000
Calculation: 30,000 / 500,000 = 0.06
Result: 6.00%
In this scenario, if the lender's interest rate hits 6.00%, your 2,500 monthly payment covers exactly the interest generated. If the rate climbs to 6.25%, you are in negative amortization territory.
Why This Matters
Understanding your trigger rate is vital for financial planning. If current market rates are approaching your calculated trigger rate, you may need to take action, such as:
Increasing Payment Amount: Voluntarily increasing your fixed payment raises the trigger rate threshold.
Lump Sum Prepayment: Reducing the principal balance effectively raises your trigger rate, giving you more breathing room.
Converting to Fixed: Switching to a fixed-rate mortgage to lock in costs, though likely at a higher immediate payment.
function calculateTriggerRate() {
// Get input values
var balance = parseFloat(document.getElementById("principalBalance").value);
var payment = parseFloat(document.getElementById("fixedPayment").value);
var frequency = parseInt(document.getElementById("paymentFrequency").value);
// Get result elements
var resultBox = document.getElementById("resultBox");
var resultDisplay = document.getElementById("triggerResult");
var explanationDisplay = document.getElementById("resultExplanation");
// Validation
if (isNaN(balance) || balance <= 0) {
alert("Please enter a valid remaining principal balance.");
return;
}
if (isNaN(payment) || payment <= 0) {
alert("Please enter a valid fixed payment amount.");
return;
}
// Calculation Logic:
// Trigger Rate = (Annual Payment Amount / Principal Balance)
var annualizedPayment = payment * frequency;
var triggerRateDecimal = annualizedPayment / balance;
var triggerRatePercent = triggerRateDecimal * 100;
// Display Logic
resultBox.style.display = "block";
resultDisplay.innerHTML = triggerRatePercent.toFixed(2) + "%";
explanationDisplay.innerHTML = "With a balance of " + balance.toLocaleString() + " and payments of " + payment.toLocaleString() + " (" + frequency + "x/year), your payments cease to cover any principal if the interest rate reaches " + triggerRatePercent.toFixed(2) + "%.";
}