Mortgage arrears in Canada have climbed from pandemic-era lows, reaching 0.28% of outstanding mortgages — but a new economic analysis from Desjardins Economic Studies argues the peak may already be approaching.
The report by senior economist Kari Norman concludes that the current uptick reflects a normalisation of conditions rather than the onset of a broader financial crisis, with a gradual decline in arrears expected through 2027 and 2028.
For mortgage brokers navigating client conversations around renewals, the picture is nuanced. Arrears, defined as mortgage payments at least 90 days overdue, rose from an exceptionally low starting point of 0.14% during the pandemic, when temporary income support, payment relief measures, and low borrowing costs together helped suppress delinquencies.
The climb since 2022 has drawn concern, but Desjardins frames it as an adjustment to higher borrowing costs rather than systemic stress.
Ontario has emerged as the sharpest pressure point. Ontario's mortgage delinquency rate climbed to 0.23%, overtaking the national average for the first time since at least 2012.
In Toronto, the rate jumped from 0.15% in Q2 2024 to 0.24% in Q2 2025, a roughly 60% year-over-year surge.
The Canada Mortgage and Housing Corporation (CMHC) has previously flagged Toronto and Vancouver as the markets most at risk, driven by high household debt, weaker resale conditions, and concentrated exposure among pandemic-era buyers who purchased at elevated prices with smaller equity cushions.
Why the worst may be behind us
Desjardins identifies several forces that should ease pressure in the months ahead. Borrowers who locked in ultra-low five-year fixed rates in 2020 and early 2021 have largely already renewed.
Those yet to renew originated at rates that were already starting to inch up in advance of the first rate increase by the Bank of Canada (BoC), which occurred in early 2022, meaning the payment shock at renewal will be comparatively more modest.
Leading indicators of credit stress also point to stabilisation. By late 2025, mortgage holders had begun reducing credit card utilisation, while the share of borrowers missing payments had plateaued, suggesting that household financial stress may have peaked.
The mortgage stress test further buffers the system, as most borrowers qualified at rates well above those they now face.
The five-year Government of Canada (GoC) bond yield — the benchmark that drives fixed mortgage rate pricing — has eased from its 2023 peak. If bond yields continue to moderate through 2026, borrowers renewing into shorter-term fixed products could see meaningful payment relief.
Risks that could shift the outlook
The Desjardins report is not without caveats. A resurgence in inflation could lead to higher interest rates, increasing borrowing costs and eroding affordability before incomes have time to catch up.
At the same time, weaker growth, potentially linked to trade disruptions such as uncertainty around the Canada–United States–Mexico Agreement (CUSMA) review, could raise unemployment and place additional pressure on mortgage holders.
CMHC analysis similarly notes that delinquency pressures in the Greater Toronto Area are expected to remain elevated throughout 2026, with high debt levels and softening resale market liquidity contributing to growing financial pressures in Vancouver.
Investor-owned properties face particular exposure as rental demand and asking rents have softened alongside changes in federal immigration policy, weakening the income buffer that many landlord-borrowers rely on to service their debt.
Despite those risks, Desjardins' base case holds. Stable labour markets, moderating inflation, and recovering home prices in most Canadian regions are all expected to support a plateau in arrears before a gradual decline through 2027 and 2028.
If that trajectory holds, it will represent a soft landing for a mortgage market that many feared was headed somewhere far worse.
CMP
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