Bank of Canada data outlines risks and relief for borrowers as major wave of renewals approaches
An estimated 60% of Canadian mortgages are set to renew in 2025 or 2026, and a majority of these borrowers are likely to face higher monthly payments, especially those on five-year fixed-rate terms. However, new Bank of Canada analysis suggests that not all borrowers will be hit equally. Some may even see their payments decline.
Using updated data from federally regulated lenders, the Bank examined how upcoming renewals might affect monthly payments if borrowers stick with the same type and term of mortgage they currently hold. Under those assumptions, the Bank estimates that average monthly mortgage payments could rise by 10% for 2025 renewals and 6% for 2026 renewals, compared to December 2024 levels.
The sharpest impact will be felt by holders of five-year fixed-rate mortgages, who make up roughly 40% of the market. These borrowers could see their monthly payments climb by 15% to 20% at renewal.
Some borrowers could see payments drop
There’s a silver lining for those with variable-rate, variable-payment mortgages. Thanks to the recent cooling of interest rates, these borrowers are likely to see their payments decline by 5% to 7% on average, especially if rates follow current market expectations.
In fact, about 25% of all Canadian mortgage holders are projected to see their payments decrease by the end of 2026. Many of these have short-term fixed-rate mortgages and are set to benefit from more favorable renewal terms.
Variable-rate, fixed-payment borrowers will see a wide range of outcomes. Around 10% could face payment hikes above 40%, while 25% might enjoy a drop of at least 7%. The difference largely depends on whether they’ve made extra principal payments or entered negative amortization, where unpaid interest is added to the balance.
Borrowers who took out or renewed variable-rate, fixed-payment mortgages before March 2022 have, on average, repaid three times the required principal. According to the bank, only 5% of this group had a higher balance in early 2025 than at the time of their last origination or renewal.
Debt service pressures will rise for some
Borrowers facing payment increases will also see their mortgage debt service (MDS) ratio climb more steeply. The median MDS ratio for this group is projected to rise from 15.3% in December 2024 to 18.0% by the end of 2026. For those whose payments are declining, the MDS ratio will ease modestly, from 19.7% to 18.6%.
While the report assumes static incomes, the bank said that many borrowers will likely have seen their earnings increase since their last mortgage term began. These income gains, along with access to tools like amortization extensions or home equity lines of credit, could help mitigate affordability stress.
The BoC’s simulation suggests that about half of borrowers facing higher payments could fully eliminate the increase by extending their amortization by five years.
Moreover, most borrowers will still be paying rates below their original mortgage stress-test threshold, given that they were tested at levels at least two percentage points higher than their contract rate.
No need to panic
Despite widespread concerns over payment shock, the Bank’s updated forecast concludes that most Canadians renewing in 2025 and 2026 will be able to adapt without severe financial strain, provided that the labour market and broader economic conditions remain stable.
The projections are based on the new RESL2 dataset, which captures real-time balances and repayment behavior with greater accuracy than previous models. The updated data reflects lump-sum payments, early amortization changes, and other borrower actions that help moderate renewal stress.
Read more: Canadians poised to weather mortgage renewal storm, says TD report
“We do not expect upcoming mortgage renewals will lead to a severe worsening of financial stress for affected borrowers, holding everything else constant,” BoC said in the report.
While some households may need to adjust their spending or draw on equity to cope with larger payments, the report notes that “most borrowers will likely have higher income at renewal and should face interest rates below what they were stress-tested for.”
Still, the bank warned that “some may struggle to meet their other financial obligations.”
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