Millions of homeowners face higher costs as key dates approach, a new report warns
A new analysis from the Bank of Canada indicates that a significant portion of Canadian mortgage holders will experience increased monthly payments upon renewal in 2025 and 2026, although the central bank said a wider shock to the mortgage market because of that trend still remains unlikely.
Approximately 60% of all outstanding mortgages in Canada are slated for renewal over the next two years, with the Bank's latest report projecting that roughly 60% of these renewing mortgage holders will see an increase in their payments compared to December 2024 levels. For those renewing in 2025, the average monthly mortgage payment could be 10% higher, while those renewing in 2026 might face an average increase of 6%.
The report highlights that these aggregate figures mask variations among borrowers and mortgage products. Specifically, holders of five-year, fixed-rate mortgages, which constitute about 40% of all Canadian mortgages, are expected to bear the brunt of these increases. Those renewing such contracts in 2025 or 2026 could see their payments jump by an average of 15% to 20% from their December 2024 payments.
In contrast, borrowers with variable-rate, variable-payment mortgages are likely to experience a different trend. Their payments are anticipated to decline by an average of 5% to 7%, as these rates have already passed their peak.
For those with variable-rate, fixed-payment mortgages, the outlook is more varied, with some facing increases of over 40% and others seeing decreases of at least 7%. This disparity is largely attributed to the principal payments borrowers have made since their last renewal or origination.
Despite these projected increases, the Bank of Canada said there's no meltdown impending in the mortgage market. "We do not expect upcoming mortgage renewals will lead to a severe worsening of financial stress for affected borrowers, holding everything else constant," the central bank's report said. "Indeed, most borrowers will likely have higher income at renewal and should face interest rates below what they were stress-tested for."
Still, it highlighted that some borrowers with higher payments at renewal will see challenges, and will be required to adjust their spending to manage higher mortgage payments and meet other financial obligations.
The analysis suggested that options like extending amortization periods could help mitigate payment increases for some households. However, the report acknowledges that some borrowers will still need to adjust their spending habits to manage the higher costs.
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