Spiking interest rates caused major headaches for plenty of borrowers from 2022 onwards. Has the picture improved since then?
A cost-of-living crisis and surging interest rates contributed to a fraught outlook for many homeowners in recent years, squeezing budgets and eating into take-home pay. But while that picture may be improving, a significant number of Canadians are still facing substantial financial challenges.
A new TD Bank survey showed that 49% of respondents see inflation and the cost-of-living as their biggest financial hurdles in 2025, even amid falling interest rates and a steady trend towards lower inflation.
What’s more, nearly two-thirds of Canadians (63%) are worried about the chance of a recession in the coming 12 months, according to a BMO poll, and just 19% expect the economy to improve this year.
Scores of mortgages, meanwhile, are renewing at higher rates in 2025 and 2026 – and while the threat of that wave has eased somewhat thanks to a series of rate cuts by the Bank of Canada, plenty of homeowners will face steeper payments than they’ve been used to managing.
How can struggling borrowers navigate higher rates and payments?
Top of mind for those borrowers, according to DLC Clear Trust Mortgages broker Anthony Zhang (pictured top), is maintaining clear communication with their lender or broker and being upfront about their struggles.
“Just talk to your lenders or bank – because the bank always has options to help you,” Zhang told Canadian Mortgage Professional. “There’s no bank that wants to foreclose your property at the end of the day.
“So always talk to the lender. If you lose your job, they can always provide an option for you to maybe do some payment deferment. Maybe they can give you a holiday [on payments] for two or three months before you get a job, so you can get your mortgage back [in order] in the next few months.”
The worst thing a client can do is miss a few payments without notifying their lender, he added, with potentially huge downsides to their credit score and prospects of securing a mortgage in the future.
Picking up the phone and talking to a broker is another wise move. “I have a few clients where they’ve doubled their mortgage payment, and we have an option to extend the amortization,” Zhang said. “Let’s say they have the mortgage and have only 10 years left. I helped a few clients to extend it back to 30 years so that they can maintain the payment back to the level before COVID.”
Some bright signs on the horizon – but don’t expect a big market rebound
The good news: rates have already fallen and are expected to continue sliding in 2025, with the Bank of Canada set to move at a careful but steady pace in bringing rates lower this year and the bond market ticking lower.
As the Bank of Canada faces its first policy decision of the year on January 29, TD Bank economists, led by James Orlando, predict a 25-basis-point cut to 3.00%, citing economic resilience and strong consumer spending.https://t.co/xS9TpQzLbr
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 21, 2025
That means while borrowers coming to the end of a five-year fixed mortgage this year will see a jump in their mortgage payment, the outlook is nowhere near as bad as it seemed around the middle of last year.
“Probably where borrowers can renew the rates will be below the 4% level, which is not a huge jump for them,” Zhang said. “They’ll be prepared because they knew this was going to happen, so they have more savings or other stuff to get prepared.”
Those falling rates could even see transaction volume in the housing and mortgage markets pick up slightly this year – and Zhang said immigrant buyers will remain a big part of that uptick, even with lower immigration targets for 2025 than previous years.
Still, don’t expect a market boom, with Canadians’ negative views towards economic prospects for the coming year expected to weigh down on homebuying activity.
“We still have a large pipeline – the people that are getting PR in the next two years who were international students,” Zhang said. “We will still see a large number of people that will get into the market because of the rates going down – but I don’t see the price in terms of property value rebounding or going up given that the economy is not so strong and there are still a high number of houses not selling in the market.”
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