Canada’s 2025-26 mortgage renewal wave has so far fallen short of the chaos once feared, although pockets of strain remain with borrowers in some Canadian cities facing deeper challenges than others.
That’s according to a report released last week by Canada Mortgage and Housing Corporation (CMHC), which showed mortgage arrears – while rising – remain low by historical standards even despite a steady uptick.
Unsurprisingly, borrowers in the pricey Toronto and Vancouver markets are seeing the steepest affordability hurdles at renewal time, but there still seems no sign of the mortgage market disaster some predicted as the renewal wave loomed.
Stress test plays its part
CMHC’s deputy chief economist Tania Bourassa-Ochoa (pictured top) sees a few reasons for that – including the mortgage stress test, sometimes maligned but also viewed as an important way of safeguarding Canada’s financial system.
Regulation has played a significant role in mitigating risk in the Canadian mortgage market, Bourassa-Ochoa told Canadian Mortgage Professional, even despite some of its downsides.
“All these years of mortgage regulation tightening that we’ve witnessed for the last decade – yes, it has kept a lot of first-time homebuyers on the sidelines and yes, it has made it a lot more difficult for people to qualify,” she said.
“But in retrospect it did really limit that increase in mortgage arrears or at least the speed of it – because we were able to stress test these borrowers, basically from the outset. That stress test did act as a safeguard and is limiting what could have been a lot worse.”
Extended amortizations, allowing borrowers to pay down their mortgage over a longer period when renewing, have also helped them navigate some of the challenges posed by higher rates.
“Financial institutions were very proactive in identifying potential riskier borrowers, looking for these adjustments to their mortgage terms at renewals or looking at different choices to make sure these borrowers were kept afloat,” Bourassa-Ochoa said. “I think the proactiveness really helped the trend that we’re seeing right now.”
Those longer amortizations can be seen as a double-edged sword – effective in the short term for helping borrowers manage their mortgage payments, but ultimately keeping them indebted for longer.
Bourassa-Ochoa described the arrangement as a trade-off between short-term financial relief and long-term wealth, with more interest ultimately being paid for a longer period down the line.
Longer-term outlook bleakest in Toronto
Mortgage arrears are still low in Toronto, the most troublesome Canadian city where delinquencies are concerned, but they’ve quadrupled since just after the pandemic and are projected to continue rising in the year ahead.
Home prices have slipped across the Greater Toronto Area (GTA) over the past two years, but it remains one of the country’s most expensive housing markets – a key reason for homeowners’ affordability struggles.
And the disaster that’s befallen Toronto’s condo sector is also playing a part, causing strain for scores of investors who’ve seen their investments in condo rental properties turn sour.
“When you look at Toronto, just by the mere fact that this is a high-priced market means that borrowers there also have larger mortgages and are more leveraged,” Bourassa-Ochoa said. “So they have higher levels of debt.
“The investor story is also very important in this context. You have a market that has a high share of investors in the condo segment. We know that in the last few years we’ve seen carrying costs increase quite significantly: property taxes, condo fees, insurance, even mortgage rates.
“It’s harder to rent right now. There are longer leasing times. And that’s resulting in a lot of investors that are now in a negative cashflow position. So whether you’re a homeowner or an investor in the condo market in Toronto right now and you’re highly indebted and renewing your mortgage, that is definitely putting a lot more pressure in that sense.”
CMP
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