Bank of Canada warns of looming mortgage payment spike

A new report from the Bank of Canada indicates that over half of Canadian mortgage holders will face increased monthly payments when their loans are renewed this year and next.

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A new report from the Bank of Canada indicates that over half of Canadian mortgage holders will face increased monthly payments when their loans are renewed this year and next.

“About 60 per cent of all outstanding mortgages in Canada are expected to renew in 2025 or 2026,” reads the central bank’s release published on Thursday.

Compared with December 2024 payments, the average monthly mortgage payment could be 10 per cent higher for those renewing in 2025 and 6 per cent higher for those renewing in 2026.

According to the Bank of Canada, despite recent declines in interest rates, mortgage holders will likely see their payments increase over the next two years, particularly those holding a five-year, fixed-rate mortgage.

Of the aforementioned 60 per cent, about 75 per cent hold fixed-rate mortgages, which are likely to see payment increases between 15 and 20 per cent on average.

However, for homeowners with a variable-rate mortgage that adjusts on a monthly basis, payments are projected to decrease by five to seven per cent.

Meanwhile, those holding variable-rate mortgages with fixed payments may face different changes, with about 10 per cent facing increases of more than 40 per cent in 2026, while another cohort of 25 per cent may see decreases of at least seven per cent.

The Bank of Canada said that borrowers facing payment increases at renewal are expected to see a sharper rise in their mortgage debt service ratio than those poised to see payment decreases.

Increased payments are projected to see the median MDS ratio tick up from 15.3 per cent in December 2024 to 18 per cent by the end of next year.

Whereas borrowers with decreasing payments will see their median MDS ratio drop from 19.7 per cent to 18.6 per cent.

“Overall, we do not expect upcoming mortgage renewals will lead to a severe worsening of financial stress for affected borrowers, holding everything else constant,” said the central bank.

“Indeed, most borrowers will likely have higher income at renewal and should face interest rates below what they were stress-tested for. That said, some borrowers with higher payments at renewal will face challenges. Many of them will need to change their spending to manage higher mortgage payments. And some may struggle to meet their other financial obligations.”