It comes as alternative lending grows
As Canadians brace for a wave of mortgage renewals, a new report from the Canada Mortgage and Housing Corp. (CMHC) revealed a concerning rise in mortgage delinquencies, reflecting what the agency described as a “fragile financial state” for many households.
Despite the Bank of Canada’s recent interest rate cuts, the report showed that homeowners face mounting financial pressures, which could push delinquencies higher into next year.
Mortgage delinquency rates — the percentage of homeowners who have missed payments for over 90 days — rose slightly to 0.192% by the end of June, up from 0.17% at the end of 2023.
Though still below pre-pandemic levels of 0.28% in 2019, CMHC’s deputy chief economist Tania Bourassa-Ochoa said this “sticky upward trend” could mean a return to these pre-pandemic rates as early as next year.
“We have already been seeing this financial pressure mount up, generally speaking, among homeowners,” Bourassa-Ochoa told Global News.
Financial pressures beyond mortgages
While mortgage payments are a priority, signs of financial stress are mounting in other areas, which CMHC suggested could eventually impact mortgages.
Delinquency rates for auto loans climbed significantly to 2.42% in the second quarter, up from 2.11% in the first quarter. Credit card and line of credit delinquencies also rose in the first half of the year.
According to the report, these trends are “leading indicators” for mortgage delinquencies, signalling potential stress ahead for home loan payments as budgets tighten further.
The higher cost-of-living, elevated interest rates, and large mortgage balances are all contributing to the pressure, Bourassa-Ochoa explained. She pointed out that many Canadians will prioritize mortgage payments, treating them as the last expense to default on.
However, with 1.2 million fixed-rate mortgages coming up for renewal in 2025, a growing number of homeowners are likely to feel the strain. Most of these mortgages were initially set up when rates were at or below 1%, meaning renewal payments will rise considerably.
CMHC estimated an average 30% increase in monthly payments for those renewing next year.
Rate cuts offer limited relief
Although the Bank of Canada has reduced its policy rate by 1.25 percentage points since June, bringing it to 3.75%, the impact on mortgage rates has been limited, as the reductions have already been factored into the market. This means that, for many, the rates available today may be as low as they’ll see in the near future.
CMHC anticipates that housing market activity will increase in 2025, buoyed by potential additional rate cuts and proposed federal changes to expand access to insured mortgages and 30-year amortization options.
According to Bourassa-Ochoa, a tighter housing market can also help financially stressed homeowners sell more quickly if needed, helping avoid mortgage defaults.
Read next: Canada's mortgage market set for a strong 2025 - experts
However, she emphasized that Canadian households remain in a vulnerable position.
“[Households are] in a more fragile financial state than they were before,” Bourassa-Ochoa said.
“We’re definitely expecting the policy rate cuts to put a little bit of momentum into the economy. And that should definitely be limiting that increase in mortgage arrears. But it’s important to note that households are in a more vulnerable financial position than they were before.”
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