A looming wave of renewals at higher rates sparked concern about possible widespread mortgage stress, but here's why the banking giant is seeing cause for optimism
Despite widespread media concerns about a looming “mortgage shock,” aggregate mortgage payments across Canada are actually declining, according to a recent report from TD Economics. While many individual homeowners are indeed facing higher monthly payments upon renewal, national figures show a different trend, attributed to lower mortgage rates and the composition of outstanding loans.
The report, authored by economist Maria Solovieva, highlights that in the final two quarters of last year, mortgage interest payments saw an average decline of 1.7%, contributing to an overall contraction in total mortgage payments. This seemingly contradictory situation, the report explains, exists because national mortgage payments are calculated using aggregate dollar volume, giving more weight to high-balance mortgages.
The ‘early relief’ group
A significant portion of Canadian mortgage holders, estimated at over one-third of those renewing between now and 2026, fall into an “early relief” group. These are primarily borrowers with variable-rate or short-term fixed mortgages who are benefiting from recent interest rate cuts. As the Bank of Canada began its easing cycle in mid-2024, these borrowers, often carrying above-average balances, experienced early relief, which has helped to drive down the aggregate figures.
For instance, the report cites an example of a borrower with a $1 million mortgage who renewed a one-year term at 5.9% and saw their monthly payment decrease by a substantial $1,480. This single large mortgage’s reduction can offset multiple smaller increases, influencing the national average.
Vulnerability remains for some
While the overall picture appears more stable, the report acknowledges that individual households will still experience strain. Approximately 40% of borrowers, particularly those rolling over from the ultra-low-rate period of late 2020 to early 2021, are most likely to face payment increases. The peak of these renewals is anticipated in Q4 2025 to Q1 2026.
Households at the lower end of the income spectrum are expected to feel the squeeze most acutely, as their debt growth has outpaced income gains over the past five years, according to the report. Regional disparities are also evident, with provinces like Ontario and British Columbia, characterized by stretched affordability and higher average mortgage balances, already seeing a faster rise in delinquency rates.
Despite these challenges, the report suggests that many homeowners have some flexibility, including options to extend amortization periods, refinance, or pre-pay. However, the lingering effect will be less financial flexibility for many consumers, particularly if unemployment rises as forecasted to peak at 7.3% in Q4 2025.
How are mortgage payments impacting household finances this year? Share your insights in the comments below.
