Mortgage Stress Grows as Homeowners Renew

The pandemic-era mortgage renewal wave is nearing its end and with it comes increased concern for some Canadians. Over the next year, the last of the five-year, fixed-payment mortgages taken out during the record-low interest rate period will come up for refinancing, representing approximately 12% of all outstanding mortgages in Canada. Although mortgage rates have fallen from the two-decade highs reached in mid-2023, many homeowners making the transition will still face higher borrowing costs than they did when the overnight lending rate was 0.25% in 2021 — a historic low.

According to a recent Royal LePage survey, 38% of Canadians with a mortgage on their primary residence expect their monthly mortgage payment to increase upon renewal. When asked about that prospect, approximately one-third said they are more anxious.

Importantly, the vast majority of these borrowers were stress-tested at rates near 5% or higher, meaning they are moving into a rate environment they have already demonstrated they can handle.

Under federal mortgage qualification rules, borrowers must demonstrate they can afford payments at a rate higher than the one they are offered by their lender. Today, buyers must qualify at the greater of their contract rate plus two percentage points or 5.25%. As a result, homeowners who purchased in 2021 were required to qualify at a minimum of 5.25% — higher than most five-year fixed mortgage rates available today.

In Toronto, homeowners report higher-than-average anxiety about an increase in their monthly mortgage payment at renewal, with 76% saying it will place financial strain on their household. Even so, most are looking for ways to stay in their homes rather than sell to reduce their housing costs. When mortgage payments put pressure on the household budget, many are exploring practical options, including adjusting discretionary spending, cutting back on travel, delaying or cancelling home renovations, generating rental income or, in some case, selling an investment property.

Data from Canada Mortgage and Housing Corporation shows that mortgage delinquency rates have increased modestly as higher payments take effect, but remain well below pre-pandemic levels and low compared to other advanced nations. Toronto recorded one of the largest increases among major markets, with the mortgage delinquency rate rising from 0.2% to 0.29% between the fourth quarters of 2024 and 2025, reflecting the pressures borrowers face in one of Canada’s most expensive housing markets. A certain percentage of homeowners may ultimately be unable to afford their higher payments at renewal and could be forced to sell. Power of sale occurrences have already increased compared to previous years and this is typically a lagging indicator of financial stress. Even after the final wave of the hardest-hit mortgage renewers passes, defaults could continue at an elevated level for a year or more afterward.