Negative Amortization on a Mortgage, Explained
When mortgage rates climbed after 2022, thousands of Canadians discovered their balance was going up, not down. It’s called negative amortization — here’s exactly how it happens, why it matters most at renewal, and the five ways to fix it.
What is negative amortization?
Normally, each mortgage payment covers your interest and chips away at your principal, so the balance falls over time. Negative amortization is the opposite: your payment isn’t even enough to cover the interest, so the shortfall gets tacked onto your principal. Your balance climbs, and you’re effectively going backwards.
Why it happens: fixed-payment variable mortgages
The main culprit is the fixed-payment variable-rate mortgage. Your rate moves with the market, but your monthly payment stays the same. That’s comforting when rates rise — until the rate climbs past your trigger rate, the point where your fixed payment only covers interest. Beyond that, there’s nothing left for principal, and unpaid interest starts adding to the balance. Interest-only payment plans can create the same effect.
Why it’s really a renewal problem
Here’s the catch. Fixed-payment variable mortgages did something useful during the rate hikes of 2022–2023: they kept monthly payments steady and cushioned households from immediate payment shock — economists credit them with helping Canada avoid a sharper downturn. But they delayed the shock rather than removing it. A mortgage that grew through negative amortization will need a higher payment at renewal to get back on track within its amortization — so the bill comes due when the term is up.
The regulatory response
Canada’s banking regulator, OSFI, recognized the risk and moved to require banks to hold more capital against mortgages in negative amortization where the balance exceeds about 65% of the property’s value. The goal is to reduce the risk these loans pose to lenders and insurers — and it’s part of why addressing negative amortization early is wise.
5 ways to fix negative amortization
Increase your payment
Raise your regular payment or make lump-sum prepayments to close the gap and start reducing principal again.
Convert to a fixed rate
Lock in a fixed rate for a predictable payment that always covers principal and interest.
Refinance
Replace your mortgage with new terms that lower the payment or reset the amortization.
Adjust your terms
Extending the amortization can reduce the payment and stop the balance from growing.
Get advice early
A broker can model your options and time the fix — ideally well before renewal.
How a Calgary mortgage broker helps
If your balance has been creeping up, you have options — and the earlier you act, the better. We:
- Check whether you’ve passed your trigger rate and by how much.
- Model converting to fixed, refinancing, or adjusting your amortization.
- Plan the fix around your renewal so you avoid the worst of the payment shock.
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Frequently asked questions
What is negative amortization on a mortgage?
What is a trigger rate?
Is negative amortization bad?
How do I get out of negative amortization?
Will it affect my mortgage renewal?
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Free · No credit check to start · No obligationThis article is general information, not financial, mortgage or legal advice. Product behaviour, trigger rates and regulatory rules vary by lender and over time, and are subject to change and lender approval. Please speak with a licensed mortgage professional about your specific circumstances. Mortgages for Less with INDI Mortgage.