A recent analysis from the Bank of Canada signals a significant financial shift for a majority of the country's homeowners, forecasting that roughly 60 percent of mortgage holders will face higher payments upon renewal in 2025 and 2026.
This projection comes from a new staff analytical note, which clarifies that even with interest rates expected to ease gradually, they will likely remain well above the levels seen when many current mortgages were signed. For homeowners preparing to navigate their upcoming renewals, understanding the details is the first step toward a sound financial strategy.
A Look at 2025 and 2026
The Bank of Canada's report provides a clear timeline for the anticipated payment shocks.
- In 2025: Homeowners renewing their mortgages are expected to see an average monthly payment increase of 10% compared to their payments at the end of 2024.
- In 2026: The pressure is projected to moderate slightly, with the average increase dropping to around 6%.
These figures, while significant, represent an average. The actual impact on a household's budget will depend heavily on the type of mortgage they hold.
How Fixed vs. Variable Rates Will Fare
The central bank's analysis reveals a stark contrast in outcomes between different mortgage types.
The Squeeze on Fixed-Rate Mortgages
Homeowners with fixed-rate mortgages, especially those who locked in five-year terms at historic lows, are projected to feel the most significant impact. This group, which accounts for 40% of all Canadian mortgages, is expected to see payment increases between 15% and 20% on average. This demographic is the primary driver behind the overall upward trend in renewal payments.
To put this in perspective, data from Ratehub.ca illustrates that a homeowner who purchased an average-priced home in 2020 could see their monthly payment jump by approximately$424 this summer—an annual increase of nearly$5,100.
A Mixed Outlook for Variable-Rate Holders
The forecast is more varied for those with variable-rate mortgages.
- Variable-Rate with Adjusting Payments: These borrowers may actually see some relief. As the Bank of Canada's policy rate declines, their payments are projected to decrease by 5% to 7%.
- Variable-Rate with Fixed Payments (VRFP): This group faces the most uncertainty. While about 25% may see payment decreases, a smaller segment of around 10% could face severe payment shock, with increases potentially exceeding 40% in 2026 as their loans reset at a higher principal.
The Impact on Household Budgets and Homebuyer Behaviour
This impending wave of renewals is set to increase the financial strain on many households. The Bank of Canada projects that the median mortgage debt service (MDS) ratio—the slice of income dedicated to mortgage payments—will climb from 15.3% to 18% for those facing payment hikes.
This financial pressure is reflected in broader market trends. A recent survey from Mortgage Professionals Canada highlights a growing anxiety, with one in five mortgage holders worried about their upcoming renewal. The survey also revealed a strong preference for stability, with 68% of recent borrowers opting for fixed-rate mortgages. Furthermore, it underscored a reliance on outside financial help, with 70% of buyers in the last two years stating they could not have purchased their home without it.
How to Prepare for Your Mortgage Renewal
The Bank of Canada's report is not a prediction set in stone, but a valuable forecast based on current market expectations. It serves as a crucial reminder for homeowners to be proactive rather than reactive.
- Know Your Numbers: Don't wait for the renewal letter. Understand your current mortgage terms, balance, and amortization period.
- Consult a Professional: Speak with a mortgage advisor well in advance of your renewal date to explore all your options, from switching lenders to changing your mortgage type.
- Budget for the Future: Start stress-testing your budget now. See how a 10% or 20% increase in your mortgage payment would affect your monthly cash flow.
In a complex and shifting borrowing landscape, knowledge is your greatest asset. If you have questions about how these market changes could affect your property value or your next real estate decision, our team at Coldwell Banker Horizon Realty is here to provide the expert guidance you need.
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.
