Canadians today carry more debt relative to their income than citizens of almost any other developed country. We're talking about a debt-to-income ratio that peaked around 185% in 2022 and still sits in the low 170s today, meaning the average household owes well over one and a half times what it earns in a year.

That wasn't always the case. Forty years ago, Canadian household debt looked completely different. The story of how we got here involves interest rates, housing booms, financial deregulation, and some collective choices that seemed smart at the time but built up consequences we're still dealing with.

Let's walk through how Canada became one of the world's most leveraged populations.

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Where We Started: The Early 1980s

In 1980, the average Canadian household carried debt equivalent to about 66% of their annual disposable income. For context, if a family earned $50,000 after taxes, they typically owed around $33,000 total, including mortgages, car loans, and credit cards.

That sounds manageable until you remember what interest rates looked like. Mortgage rates hit 21.75% in 1981, the highest they've ever been in Canadian history. People weren't drowning in debt because they couldn't borrow much. Banks didn't hand out money when servicing that debt cost nearly a quarter of the principal each year.

The high-rate environment of the early 1980s acted as a natural brake on borrowing. You simply couldn't qualify for large loans, and even if you could, the payments would crush you. Debt levels stayed relatively low not because Canadians were more financially disciplined, but because the system made it hard to borrow.

Then things started changing.

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The 1990s: Deregulation and Falling Rates

The financial landscape transformed through the 1990s in ways that would permanently alter Canadian borrowing behavior.

First, interest rates came down. After peaking above 21% in 1981, mortgage rates fell to around 8.25% by 2000. That's still higher than what we've seen recently, but compared to the early 1980s, it was a gift. Borrowing became affordable again.

Second, financial deregulation opened up new credit channels. Banks introduced home equity lines of credit (HELOCs) in the mid-1990s, giving homeowners access to their property equity without refinancing their entire mortgage. Credit cards became more available. Auto loans got easier to secure.

By 2000, household debt had climbed to about 110% of disposable income. That's a jump of roughly 44 percentage points in two decades. Canadians were borrowing more, but house prices were also rising, and many viewed that rising home equity as a form of savings.

The financial system had become more permissive, and Canadians took advantage of it.

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The 2000s: The HELOC Era and Housing Acceleration

The 2000s marked the decade when borrowing against your home became normalized, almost routine.

HELOCs exploded in popularity. Homeowners watched their property values climb and saw that equity as accessible money. Banks marketed HELOCs aggressively. Renovate your kitchen. Take a vacation. Consolidate your credit cards. All secured against your home, all at relatively low rates.

From a practical standpoint, it made sense. Why pay 18% on a credit card when you could borrow at 5% against your house? The logic seemed sound. The problem was that it converted unsecured debt (which is harder to get and comes with natural limits) into secured debt (which was easier to access and kept growing).

Between 2000 and 2010, household debt jumped from 110% to about 148% of disposable income. That's 38 percentage points in a single decade, one of the steepest increases Canada had seen.

What drove this? Housing prices were a big part of it. From 2003 to 2007, national home prices rose at high single-digit rates on average, with double-digit gains in many years for Toronto and Vancouver. As home values rose, so did the amount people could borrow against them.

The feedback loop was straightforward. Rising home values meant more borrowing capacity. More borrowing capacity meant people could bid higher on homes. Higher bids pushed prices up further. Repeat.

Meanwhile, mortgage regulations were still relatively loose. You could get insured mortgages with as little as 5% down and amortizations stretching to 40 years by 2007. Zero-down mortgages existed briefly. These policies put homeownership within reach of more Canadians, but they also enabled higher debt loads.

By the end of the decade, Canadians were carrying significantly more debt relative to income than Americans on a debt-to-income basis, a reversal from previous patterns. Canada was becoming an outlier.

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2008-2010: The Financial Crisis That Wasn't (For Us)

The 2008 global financial crisis hit Canada differently than it hit the United States.

While American house prices collapsed and millions of homeowners faced foreclosure, Canada's housing market barely blinked. National home prices dipped modestly in 2008 but recovered by 2009. Canadian banks, more conservatively regulated than their American counterparts, didn't face the same cascade of failures.

This divergence shaped Canadian attitudes toward debt. We watched the U.S. housing market implode while ours stayed stable. The lesson many Canadians took away: our system was safer, our banks were better, and our housing market was fundamentally different.

That confidence fed into continued borrowing. Even as the global economy struggled, Canadian household debt kept climbing. By 2010, it had reached about 148% of disposable income, and it wasn't slowing down.

The government did introduce some cooling measures. In 2008, the maximum amortization period was reduced from 40 years to 35 years, then to 30 years in 2011, and finally to 25 years in 2012 for insured mortgages. These changes were meant to limit how much Canadians could borrow.

But housing prices kept rising, particularly in Toronto and Vancouver, and buyers found ways to stretch. If you couldn't afford a detached house, you bought a condo. If you couldn't afford downtown, you moved to the suburbs. The debt kept accumulating.

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The 2010s: Low Rates and Peak Leverage

The 2010s brought interest rates to levels Canada had never seen before.

The Bank of Canada kept its policy rate at 1% or lower for most of the decade, hitting 0.5% in 2015. Variable mortgage rates dropped below 2%. Fixed rates hovered in the 2.5% to 3.5% range. Money was historically cheap.

For homeowners, this meant two things. First, monthly payments stayed manageable even as total debt loads grew. Second, existing homeowners who had bought years earlier saw their payments drop with each renewal, freeing up cash flow.

This created what economists call the "wealth effect." Homeowners felt wealthier because their properties were appreciating, and they spent accordingly. HELOCs funded renovations, vehicles, and vacations. Debt-servicing costs (the percentage of income going to debt payments) actually stayed relatively stable despite rising debt levels, because rates were so low.

By 2017, the ratio reached roughly 170%, and it would climb further to around 185% by 2022 before easing slightly. At this point, Canada's ratio was among the highest globally, clearly above the U.S. and near Australian levels.

The composition of this debt mattered. The bulk was mortgage debt, tied to real estate that was appreciating. But non-mortgage debt, particularly HELOCs and credit cards, had also grown substantially. Canadians weren't just borrowing to buy homes. They were borrowing to maintain lifestyles.

Regional patterns varied considerably. In British Columbia and Ontario, household debt levels far exceeded the national average, driven by expensive housing markets in Vancouver and Toronto. In provinces like Saskatchewan and Manitoba, debt-to-income ratios remained more moderate.

Some warning signs appeared. The Bank of Canada, the IMF, and various economists raised concerns about debt sustainability. What would happen when rates eventually rose? Could households handle significantly higher payments?

The government responded with the mortgage stress test in 2018, requiring borrowers to qualify at a rate roughly 2% higher than their actual mortgage rate. This was designed to ensure buyers could handle rate increases. It slowed borrowing somewhat, but debt levels remained elevated.

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2020-2022: Pandemic Chaos and Spending Sprees

Then came COVID-19, and household debt patterns went through something unexpected.

Initially, debt levels actually declined. In 2020, the household debt-to-income ratio fell into the low-to-mid 160s, marking a rare decline. Why? People stopped spending. Restaurants closed. Travel halted. Commuting costs vanished for remote workers. Meanwhile, government support programs like CERB put money in people's pockets.

Canadians used the pause to pay down debt. Credit card balances fell. Some people made extra mortgage payments. For a brief moment, it looked like household finances might be improving.

But that didn't last.

The Bank of Canada dropped its policy rate to 0.25% in March 2020, the lowest in Canadian history. Variable mortgage rates fell below 1%. Fixed rates dropped to around 1.5% to 2%. Money became absurdly cheap.

Housing markets exploded. With rates so low, people could bid significantly more for the same monthly payment. Bidding wars became standard. Properties sold for hundreds of thousands over asking in many markets. Between 2020 and early 2022, national home prices increased by roughly 50%.

This surge pushed debt levels back up quickly. By 2022, the debt-to-income ratio was back above 180%, reaching roughly 185%. Canadians were borrowing massive sums to buy homes at peak prices, enabled by historically low rates.

The pandemic also normalized remote work, which changed where people could live. Buyers from Toronto and Vancouver spread to smaller cities, bringing their big-city buying power to markets that had been more affordable. This pushed prices up in places like Kelowna, Halifax, and even rural communities within a few hours of major metros.

First-time buyers faced brutal conditions. Down payment requirements grew faster than savings rates. Those who managed to enter the market often did so with maximum leverage, minimal down payments, and stretched budgets. They were betting on continued price appreciation and low rates lasting.

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2023-2025: The Reckoning Arrives

Then interest rates went up. Fast.

Facing inflation levels not seen since the 1980s, the Bank of Canada raised its policy rate aggressively through 2022 and 2023. From 0.25% in early 2022, the rate hit 5% by mid-2023. Variable mortgage rates jumped from under 2% to over 6%. Fixed rates climbed from around 2% to 5% to 6%.

The impact on households was severe, particularly for anyone who had borrowed heavily in 2020-2021.

Consider someone who bought a $700,000 home in 2021 with a 10% down payment ($70,000) and a variable rate mortgage at 1.5%. Their initial monthly payment would have been around $2,300. When rates hit 6%, that payment jumped to roughly $3,400. That's nearly $1,100 more per month, or $13,200 more per year.

For households already stretched thin, this was catastrophic. Some borrowers opted for extended amortizations, pushing their mortgage payments further into the future to keep monthly costs manageable. Others couldn't make the payments at all and faced tough decisions about selling, often into a cooling market.

By 2024, household debt had eased into the low 170s, down from the 2022 peak. The decline came not from mass deleveraging but from house price corrections in some markets and modest income growth.

The debt servicing ratio, however, shot up. The percentage of disposable income going to debt payments climbed above 14%, approaching levels not seen since the late 1980s and early 1990s. This mattered more than the total debt level because it measured actual payment pressure.

Regional pain varied. Markets that had seen the biggest price increases in 2020-2021 saw the steepest corrections. Toronto and Vancouver home prices fell by 15% to 20% from their peaks. Buyers who purchased at the top found themselves underwater or close to it, owing more than their homes were worth.

Meanwhile, credit card debt and other non-mortgage borrowing crept up again as households used credit to manage higher costs of living. Inflation pushed up prices for groceries, gas, and everything else, squeezing budgets already strained by higher mortgage payments.

As of December 29, 2025, mortgage rates have come down from their 2023 peaks, with the lowest insured 5-year fixed around 3.94% and variable around 3.45%. That's still significantly higher than the pandemic lows, but far from the crisis levels of 2023.

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Why Canada Became One of the World's Most Leveraged Countries

Looking back over 40 years, several factors pushed Canada into the top tier of global household debt rankings.

Housing as investment culture. Canadians came to view real estate not just as shelter but as the primary wealth-building tool. This cultural shift encouraged maximum leverage. Why save slowly when you could borrow heavily and ride appreciation?

Sustained low interest rates. From 2008 to 2022, rates stayed historically low for an entire generation of borrowers. People got used to cheap money. They structured their finances around it. When rates finally rose, the adjustment was brutal.

Accessible credit. Financial deregulation through the 1990s and 2000s made borrowing easier than ever. HELOCs turned home equity into spending money. Credit limits increased. Approval processes streamlined. The system encouraged borrowing.

Policy responses that supported prices. Through various crises, Canadian policy consistently supported housing prices rather than letting them correct significantly. This reinforced the belief that real estate was a safe bet, encouraging more borrowing.

Regional concentration of expensive housing. Canada's population is heavily concentrated in a few expensive markets. Vancouver and Toronto's high prices pushed up the national debt average significantly. Unlike the U.S., where expensive coastal cities are balanced by affordable interior regions, Canada's major population centers are costly.

Incomplete stress testing. While the 2018 mortgage stress test helped, it came late and didn't fully account for the kind of rapid rate increases that actually occurred in 2022-2023. People who qualified at 5.25% still struggled when rates hit 6% or higher, especially combined with inflation.

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The Composition of Canadian Debt Today

Understanding what Canadians actually owe matters for assessing risk.

As of 2024, roughly 70% to 75% of household debt is mortgage debt, with the remainder split between HELOCs, car loans, credit cards, and other consumer credit. This matters because mortgage debt is secured against appreciating assets (usually), while unsecured debt isn't.

HELOCs represent a significant portion of the picture, with research suggesting they account for a low-teens share of household credit. These are particularly interesting because they blend characteristics of mortgages (secured against homes, relatively low rates) with credit cards (revolving access, flexible usage). Many Canadians treat HELOCs like extended checking accounts, drawing on them regularly for expenses.

Credit card debt has grown more concerning recently. By 2024, average credit card balances were in the mid-$4,000s to low-$6,000s, depending on the data source, and rising year over year. With interest rates on credit cards often exceeding 20%, this represents expensive debt that's hard to pay down.

Auto loans also contribute significantly. With average new vehicle prices exceeding $60,000 in many cases, Canadians are financing more to buy cars, often with 84-month (7-year) terms that keep monthly payments manageable but extend debt far into the future.

The age breakdown of debt reveals interesting patterns. Households headed by people under 35 carry the highest debt-to-income ratios, with some studies showing leverage well over 200% for certain age cohorts, largely due to recent home purchases at high prices. Middle-aged households (35-54) carry substantial debt but typically have higher incomes. Households over 65 have largely paid down mortgages, though some carry consumer debt into retirement.

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Comparing Canada to Other Countries

How does Canada stack up internationally?

Canada is often among the top three globally for household debt-to-income ratios, alongside Switzerland and Australia. Our ratio in the low 170s compares to about 103% in the United States, 135% in the United Kingdom, and 119% in the Eurozone average.

Switzerland's higher ratio (over 200%) comes from a very different housing market structure where long-term renting is normalized and mortgages often aren't fully paid off. Australia's high ratio (similar to Canada's) reflects a similar housing price trajectory in cities like Sydney and Melbourne.

What distinguishes Canada is the speed at which we got here. The U.S. ratio peaked at around 130% before the 2008 financial crisis and has been declining since. Canada's ratio continued climbing even through periods when other countries were deleveraging.

The Bank for International Settlements tracks household debt across countries, and their data consistently flags Canada as having elevated debt relative to GDP and income. This puts Canada in the category of countries economists watch for financial stability risks.

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What Happens From Here

The path forward for Canadian household debt isn't entirely clear, but a few scenarios seem possible.

Scenario one: Gradual deleveraging. If interest rates stabilize at current levels (around 4% to 5% for the Bank of Canada policy rate) and economic growth continues modestly, households might slowly pay down debt over the next decade. This would look like a return to late-1990s debt-to-income ratios, perhaps around 120% to 130%, but would take considerable time.

Scenario two: The new normal. Canadians might adapt to higher debt levels permanently, viewing 170% to 180% debt-to-income ratios as sustainable. This only works if incomes grow steadily and rates don't spike again. It's a fragile equilibrium that depends on nothing going seriously wrong.

Scenario three: Forced deleveraging. If unemployment rises significantly or rates spike even higher, households could be forced to sell assets (primarily homes) to manage debt. This would likely trigger a housing market correction, reducing both home values and mortgage debt simultaneously, but causing significant financial stress for many families.

Scenario four: Refinancing and restructuring. Some combination of policy responses (extended amortizations, alternative mortgage products, debt relief programs) could help households restructure without mass defaults. This kicks the problem down the road but avoids acute crisis.

The most likely outcome probably involves elements of multiple scenarios, varying by region and household situation. What's clear is that Canada's high household debt levels create vulnerability to economic shocks, whether from unemployment, interest rate spikes, or housing market corrections.

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What This Means for Homebuyers and Homeowners

For anyone in the market or considering it, understanding Canada's debt trajectory provides important context.

If you're buying now, recognize that you're entering at a time when household debt levels are historically elevated and interest rates, while down from their 2023 peaks, remain higher than they've been in over a decade. This is very different from buying in 2015 or 2020. Your mortgage payments will represent a larger share of income, and you have less cushion if rates rise further or if your income drops.

If you bought recently at peak prices, understand you're not alone. Many Canadians purchased in 2020-2022 under similar conditions. Focus on whether you can manage your payments at current rates, and consider fixed-rate mortgages if you need payment stability. Avoid making decisions based on when you think home prices will recover.

If you're a long-term homeowner, your situation is likely more stable. If you bought before 2015, you've benefited from significant appreciation and probably have substantial equity. Be cautious about increasing your debt load now, even with that equity available. The era of cheap HELOCs funding lifestyle upgrades may be over.

For everyone, the key insight is that Canada's high household debt levels weren't inevitable. They resulted from specific policy choices, market conditions, and cultural attitudes toward borrowing and housing. Those conditions are changing. The strategies that worked over the past 20 years (maximum leverage, betting on appreciation, treating home equity as spendable money) carry more risk now than they did.

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The Bottom Line

Over 40 years, Canada transformed from a country with relatively modest household debt to one of the most leveraged populations in the developed world. We went from 66% debt-to-income in 1980 to peaks around 185% in 2022, settling in the low 170s today.

This wasn't an accident. It resulted from falling interest rates, financial deregulation, housing market dynamics, and policy choices that consistently supported borrowing and asset appreciation. For many Canadians, the strategy worked. They built wealth through real estate, using leverage to amplify returns.

But leverage works both ways. It amplifies gains when things go well and amplifies pain when they don't. The rapid rise in interest rates through 2022-2023 revealed the vulnerability of carrying so much debt. For households that borrowed heavily at the peak, the adjustment has been difficult.

Looking forward, Canada likely faces a period of adjustment. Debt levels this high aren't sustainable if rates remain elevated or if economic growth slows. Whether that adjustment happens gradually through slow deleveraging or abruptly through forced selling depends on how the next few years unfold.

For now, Canadian households remain among the most indebted in the world. That's the legacy of 40 years of choices, policies, and market dynamics. Understanding how we got here matters for navigating what comes next.