Home prices have fallen 20% from their March 2022 peak of $851,600 to around $679,600 nationally as of October 2025. For many homeowners, that decline is more than just a number on a price chart. It's affecting their options when mortgages come up for renewal.

Here's why. Property values determine how much equity you have. And equity determines what choices you get with your mortgage. When values drop, equity shrinks. When equity shrinks, options disappear.

This is particularly hitting people who bought near the peak in 2021 or 2022, put down small down payments, and are now facing renewals with less equity than they started with.

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The Loan-to-Value Problem

Lenders care about one metric more than almost anything else: loan-to-value ratio, or LTV. It's simple math. Your mortgage balance divided by your home's current market value.

If you owe $400,000 on a home worth $500,000, your LTV is 80%. If that same home drops to $450,000, your LTV jumps to 89%. Same mortgage, less equity, worse ratio.

Here's an example. Say you bought in 2021 at the average price with 5% down and got default insurance. Your mortgage balance now might be roughly 84% of your home's current value. That's an 84% LTV.

If you bought after 2021 and haven't made extra payments, your LTV might look worse because you've had less time to pay down principal and rates have been higher, meaning more of your payment went to interest rather than principal.

By comparison, if you bought with 20% down well before or after the early-2022 peak, you're probably fine. Your principal payments have reduced your mortgage balance faster than home values dropped. Your LTV stayed manageable.

But there are exceptions. If you bought within a few months of February 2022, even with 20% down, you might be among the minority of borrowers in select markets who are underwater on their mortgage. Meaning you owe more than the home is worth.

Over 20% of homeowners who bought between 2021 and 2022 are already in negative equity positions, according to recent market reports. That's not theoretical. That's one in five homeowners from that period.

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Why 80% LTV Matters So Much

Once your LTV exceeds 80%, two things happen.

First, refinancing becomes difficult or impossible at prime rates. A standard refinance requires 20% equity. If you don't have it, you're looking at alternative lenders charging significantly higher rates or private mortgages with double-digit interest.

Second, if your mortgage is uninsured, you can't switch lenders. Mainstream lenders require default insurance for high-ratio mortgages over 80% LTV. If you don't have insurance and you're over 80%, you're stuck with your current lender.

And lenders know this. They monitor property values routinely. They know roughly how much equity their borrowers have because they track average prices in every neighborhood.

When they know your options are limited, their renewal offers reflect that reality. Why would they give you their best rate when you can't go anywhere else?

For borrowers with insured mortgages, the picture is better. As long as you otherwise qualify, lenders will accept high LTVs, even in the 90% range, because the insurance company takes the risk if you default. You can still shop around and switch lenders if you find a better rate.

But if your LTV exceeds 100%, meaning you're underwater, even insurers and lenders get uncomfortable. CMHC technically allows underwater borrowers to switch lenders, but finding a lender willing to accept that application is difficult. Most won't add underwater mortgages to their portfolios voluntarily.

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The Kelowna Context

Kelowna's market peaked in March 2022 with single-family homes averaging $1,131,800. By November 2025, that benchmark dropped to $1,042,900, down about 8%. Townhouses fell 16% from their peak. Condos dropped 12%.

Those are smaller declines than some markets, but they're still enough to affect equity for recent buyers.

Someone who bought a $1.1 million single-family home in early 2022 with 10% down ($110,000) now has a home worth about $1,042,900. Their mortgage was originally $990,000. After three years of payments at higher rates, they might have paid down $40,000 to $50,000, leaving a balance around $940,000 to $950,000.

That puts their LTV around 90% to 91%. If their mortgage is uninsured, they can't switch lenders. They're renewing with their current bank at whatever rate gets offered.

Now consider someone who bought a condo at the peak for $557,700 in April 2022 with 5% down and insurance. Their mortgage was $529,815. The same condo is now worth about $489,500, down 12%. After three years of payments, their balance might be around $490,000 to $500,000.

Their LTV is now 100% to 102%. They're underwater or close to it. They have insurance, so technically they can switch lenders, but finding one willing to take on that file is harder.

And here's the uncomfortable part. Kelowna's correction happened quickly in 2022. Prices dropped $200,000 in three months for single-family homes. Then they flatlined. They haven't recovered significantly since.

Francis Braam, owner/broker at Royal LePage Kelowna, told Kelowna Now that "the real price correction in Kelowna was over two years ago. Prices have essentially flatlined since."

That means anyone who bought near the peak is still dealing with reduced equity, and there's no quick recovery coming. Prices are expected to stay flat through 2026, according to local real estate professionals.

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The Renewal Wave

About 60% of all outstanding mortgages are due to renew within the next two years. Many of these borrowers will renew for the first time since interest rates increased in 2022.

Roughly 1.2 million fixed-rate mortgages worth over $300 billion are set for renewal in 2025. Most of these mortgages were originated when the Bank of Canada's rate was at or near 0.25%. They're renewing now with the policy rate at 2.25%, and mortgage rates reflecting that.

A homeowner with a $500,000 mortgage at 2% had monthly payments around $2,118. At a renewal rate of 4.2%, that payment increases to about $2,700. That's a 30% jump, or roughly $7,000 more annually.

Most borrowers can handle that because of stress testing. When they qualified originally, they had to prove they could afford payments at a rate roughly 2% higher than their contract rate. So the payment increase, while significant, shouldn't cause default in most cases.

But it does leave less room for other expenses. And for borrowers whose equity has shrunk, it eliminates flexibility. They can't refinance to access equity for home repairs or debt consolidation. They can't easily switch lenders to get better terms. They're locked in until equity recovers.

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Delinquency Rates Are Climbing

The national mortgage delinquency rate climbed to 0.20% as of Q3 2024, up from 0.14% in 2022. That's still low by historical standards, but the pace of increase is concerning.

In Toronto, delinquency rates have doubled to 0.16%, the highest since 2015. Early warning indicators like rising credit card and auto loan delinquencies suggest further financial stress among consumers.

Auto loan defaults reached 2.42%, the highest in over a decade. Non-mortgage delinquency rates surged nearly 29% year-over-year. Historically, rising defaults in unsecured credit markets precede mortgage delinquency spikes by six to twelve months.

Banks are preparing. Expected credit losses (ECLs) for mortgages have increased, with both prime and uninsured mortgages seeing higher provisioning. This shift highlights growing concerns that even prime borrowers may struggle to refinance at significantly higher rates.

The correlation between ECLs and actual delinquencies suggests mortgage defaults will continue rising in coming quarters. Historically, delinquency rates follow increases in ECLs by six to twelve months, implying mortgage delinquencies could climb to 0.27% by Q3 2025, the highest level in over a decade.

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The Negative Equity Trap

Falling home values create a specific problem for leveraged investors and recent buyers. If prices decline further, distressed borrowers with limited refinancing options may have no choice but to default.

A cooling rental market is exacerbating financial stress for investors. Average rental rates in key markets like Toronto and Vancouver have fallen 5% to 8%, reducing rental income and making it harder for leveraged investors to cover mortgage payments.

As rental yields shrink, some investors are being forced to sell. That adds supply to markets already dealing with elevated inventory, which puts further downward pressure on prices. It's a feedback loop.

The sales-to-new-listings ratio (SNLR) has been declining, a key metric for predicting mortgage arrears. Historically, a decline in SNLR has been followed by an increase in mortgage arrears within six to twelve months, as weaker sales activity limits homeowners' ability to sell if they get into financial trouble.

For Kelowna specifically, sales dropped 50% from the 2021 peak. There were 8,000 sales in 2021 compared to about 4,000 in 2023. That's a dramatic decline that reduces liquidity for anyone needing to sell quickly.

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What Refinancing Actually Costs

If you're over 80% LTV and need to refinance, your options narrow significantly.

You might find a small unsecured line of credit, but rates will be higher than prime. You might borrow against other assets if you have them. Or you might find a private lender willing to give you a second mortgage up to 85% of your property value.

But private lending comes at double-digit interest rates. You're paying 10% to 15% because the lender is taking on higher risk. For a $50,000 second mortgage at 12%, that's $6,000 annually in interest alone.

And if you own a condo in a weak market, even private lenders might pass. Condos are harder to sell and values are more volatile, making them riskier collateral.

The alternative is doing nothing and renewing with your existing lender at whatever rate they offer. For insured borrowers, that's not terrible because insured rates are typically 25 basis points or more below uninsured rates. The savings arguably offset the insurance premium you paid upfront.

But for uninsured borrowers stuck with their lender, renewal rates can be significantly higher than what they'd get if they could shop around. The difference between a captive renewal rate and a competitive rate can be 50 to 100 basis points, which on a $500,000 mortgage is $2,500 to $5,000 annually.

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The Stress Test Exception

There's one silver lining. You can switch lenders without having to pass the mortgage stress test, as long as you keep the same loan amount, amortization, and other terms.

That makes qualifying easier. You don't need to prove you can afford an interest rate 2% higher than your contract rate. You just need to prove you can afford the actual contract rate.

This exemption helps borrowers whose income hasn't kept pace with rate increases. They might not qualify under stress test rules, but they can still switch if their equity is sufficient.

The problem is that this exception doesn't help if your LTV is too high. If you're over 80% and uninsured, you still can't switch regardless of stress test rules.

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What You Can Do

If you're facing renewal in the next six to eighteen months, check your equity position now. Don't wait until the week before renewal.

Start by finding out what your home is worth today. Check your local real estate board's average price change for similar homes since you bought. Apply that percentage change to what you paid. That gives you a rough estimate.

You can also use online valuation tools or consult a local real estate professional for a more accurate assessment. The goal is to know whether your LTV is above or below 80%.

If you're below 80%, you're fine. Shop around for renewal rates. Get quotes from multiple lenders. Your existing lender will match or beat competitive offers if they want to keep your business.

If you're between 80% and 95% with insurance, you can still switch lenders as long as you otherwise qualify. Start the process early. Gather income documentation. Get pre-approved elsewhere before your renewal date.

If you're between 80% and 95% without insurance, you're stuck with your current lender unless you can find cash to pay down the mortgage below 80%. That might come from savings, family help, or selling other assets. It's not ideal, but it's better than being captive to one lender's pricing.

If you're over 95% or underwater, your options are extremely limited. Focus on making payments, avoiding default, and waiting for equity to recover. Don't take on additional debt. Don't miss payments. Protect your credit score because you'll need it when conditions improve.

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The Longer View

Home values in Canada are not expected to recover to 2022 peaks until 2029, according to current forecasts. That's four more years of prices staying below where they were.

For Kelowna, local experts suggest prices will stay flat through 2026 before potentially recovering in 2027 and beyond. The city's market tends to move in exaggerated cycles. When it drops, it drops hard. When it recovers, it recovers hard. But the recovery hasn't started yet.

That time horizon matters for planning. If you're underwater or close to it, you're looking at several more years before equity rebuilds through a combination of principal payments and modest price appreciation.

If you bought a $1.1 million home in 2022 and it's now worth $1.04 million, you need either prices to rise 5.8% back to $1.1 million, or you need to pay down enough principal to get back to 80% LTV. At current amortization rates, that could take five to seven years depending on your payment amount and interest rate.

During that time, you have limited flexibility. You can't refinance easily. You can't switch lenders without insurance. You're working within constraints that didn't exist when you bought.

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The Broader Market Impact

These individual stories add up to broader market effects. Borrowers with limited equity can't access home equity lines of credit for renovations or major purchases. That reduces consumer spending in those categories.

Borrowers who can't switch lenders pay higher renewal rates, which leaves less money for other spending. That weighs on consumer spending overall, which is 60% of GDP.

Borrowers who are underwater might delay selling even if they want to move for work or lifestyle reasons. That reduces labor mobility and housing turnover, which affects market liquidity.

And in extreme cases, borrowers who can't handle higher payments and can't refinance might default. That increases distressed sales, which puts further downward pressure on prices in a negative feedback loop.

The system hasn't broken yet. Delinquency rates remain low. But the stress is building. Mortgage delinquencies could climb to 0.27% by Q3 2025, according to projections based on expected credit loss trends. That would be the highest level in over a decade.

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Looking Ahead

The good news is that interest rates have come down significantly. The Bank of Canada cut from 5% to 2.25%, a 275 basis point reduction. That helps affordability for new buyers and reduces payment shock for those renewing.

But it doesn't fix the equity problem for recent buyers. Rate cuts make future purchases more affordable. They don't restore lost equity from falling prices.

For anyone navigating these issues in Kelowna or elsewhere in Canada, understanding your loan-to-value ratio and what it means for your options is critical. Check your equity position early, explore your renewal options before you're forced into them, and plan for a multi-year timeline if you're underwater or close to it, because the recovery in both prices and equity takes time that compounds with every year you wait, which is why working with the team at Coldwell Banker Horizon Realty can help whether you're trying to understand your equity position, evaluating whether now is the right time to sell despite market conditions, or looking for properties that offer better value in the current environment.