Home Equity Is About Leverage, Not Income

A familiar explanation is taking hold as power-of-sale listings rise in markets like Toronto and Vancouver. The story goes that homeowners renewed at much higher rates and immediately fell behind. Higher rates clearly add pressure, but they are not the underlying cause of failure.

For more than a decade, many households in Canada’s most expensive markets relied on a financial model that only functioned when property values kept climbing. Mortgage renewals became a reset button. Consumer debt, personal loans, and renovation costs were regularly rolled into the mortgage, reducing monthly cash strain while quietly increasing total leverage. On paper, borrowers still looked healthy because rising prices preserved equity.

The behaviour was widespread. A buyer might purchase a Vancouver condo with a $650,000 mortgage. Five years later, without changing homes, the balance could easily grow to $750,000. Some of that reflected legitimate improvements. Much of it did not. Ongoing spending that exceeded income was absorbed through refinancing, provided property values rose by $60,000 to $70,000 annually. Banks remained comfortable because loan-to-value ratios stayed within guidelines. The risk was hidden in the direction of home prices.

This was effectively treating future home appreciation as a substitute for income. It worked while prices moved one way.

That assumption no longer holds. In parts of Greater Vancouver and the Greater Toronto Area, home prices have gone sideways or declined since the peak. At the same time, mortgage payments have jumped as renewals are at materially higher rates. The ability to extract new equity has largely disappeared.

Households that added $15,000 to $25,000 in new debt each year now face a very different reality. The debt remains, while monthly payments are higher. The home is not worth meaningfully more than it was at the last refinance. When unsecured balances can no longer be consolidated into the mortgage, cash flow stress accelerates quickly.

This is where the power of sale emerges. What appears to be a sudden break is often the end of a long process. The financial buffer people relied on was not savings or income growth. It was price appreciation. Once prices stopped rising, that buffer vanished.

The increase in power-of-sale activity is not primarily due to a single bad year or a single rate reset. It reflects years of borrowing against tomorrow’s equity colliding with a housing market that is no longer providing it.

Why does this matter for advisors? Clients under pressure often need more than a lower rate. They are dealing with cumulative leverage that has been building quietly for years. The most valuable advice right now is not tactical rate selection, but early balance sheet triage, stress testing, and realistic exit planning before options narrow further.

Financial advisors who flag cumulative debt early and avoid open-ended collateral charge setups give clients control before leverage does. This is your moment to partner with nesto mortgage experts and replace passive renewals with intentional and holistic financial planning structured around your client’s unique needs. 

Partner with nesto mortgage experts to integrate personalized financing solutions into your client strategies. Together, we can make responsible borrowing a cornerstone of long-term wealth creation and foster client confidence.

---

Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and the quality of their advice. nesto aims to transform the mortgage industry by providing honest advice and competitive rates through a 100% digital, transparent, and seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

---