Mortgage Renewals Set to Squeeze Households

Approximately 1.2 million mortgages will renew in 2025, the vast majority of which were secured when the Bank of Canada’s key lending rate was at or below 1%.

While interest rates have trended down since June 2024, from their two-decade high, they still remain above the historically low levels seen during the pandemic. As a result, hundreds of thousands of homeowners will likely renew their mortgage this year at a higher rate.

So far, many Canadians have avoided the worst-case scenario of having to sell their homes due to the inability to cover the cost of their mortgage, thanks to solid employment trends and declining interest rates. However, 22% of Canadians who are renewing the mortgage on their primary residence will face a substantial rise in costs this year, according to a recent Royal LePage survey conducted by Hill & Knowlton, putting added pressure on their household finances. Many in this situation are exploring options to lower their monthly fees, such as extending the amortization period — a tactic which has proven popular. Others may have no choice but to list their properties for sale, while some may opt to do so as it makes financial sense. The latter generally pertains to investors who take a business-minded approach and are willing to sell a real estate asset if rising monthly expenses cut too deeply into their returns. About four in 10 properties in Toronto’s condo market are owned by investors, according to Statistics Canada.

Nationally, 11% of survey respondents said they are considering relocating to a more affordable region; 10% said they are considering downsizing; and 10% said they are contemplating renting out a portion of their home to subsidize expenses. Respondents were able to select more than one answer.

The mortgage delinquency rate in Canada remains extremely low despite the rising cost of living and household debt, but it did tick up in the third quarter of 2024 to 0.2%. This is still well below pre-pandemic levels and historical averages, and arguably the lowest among advanced economies worldwide. For example, the rate of mortgage default in the United States is more than 15 times higher.

With interest rates on a downward trajectory, variable rate mortgages are gaining in popularity. Of those who currently have a fixed rate mortgage renewing this year — the most popular mortgage product overall in Canada — 20% say they will switch to a variable rate loan.

In its first policy rate announcement of 2025, the Bank of Canada signalled a shift, noting it would prioritize economic growth over inflation control in response to rising trade tensions. In the short-term, this could lead to more aggressive cuts to the overnight lending rate if the central bank deems it necessary to shield the Canadian economy from the fallout of an unprecedented trade dispute with the U.S.

If your mortgage is up for renewal, it’s advised not to accept the first offer outright from your lender when you receive a renewal notice. Instead, explore alternative payment plans and compare options from different financial institutions to secure the best deal. With stress testing no longer required for uninsured borrowers switching lenders at renewal, you now have more flexibility.