Mortgage defaults and foreclosures are edging higher in Canada after years of sitting at record lows. The shift comes as more than one million mortgages are set to renew in 2025 and 2026, leaving households with far higher payments than during the pandemic’s ultra-low rate era.

According to the Bank of Canada, “About 60% of renewing households in 2025 and 2026 will face higher payments.” On average, 2025 renewals could result in payments approximately 10% higher than those in December 2024, creating financial strain for many families. OSFI and CMHC caution that delinquency rates will continue to climb, but also note that systemic risks remain contained, thanks to strong insured mortgage portfolios.

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Key Highlights

• Mortgage defaults are rising, but arrears remain below 0.5%, showing systemic risk is still low.
• Renewals in 2025–26 are the main pressure point, with most households facing higher payments.
• Consumer credit stress and private lending add risk in markets like Ontario and BC.

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Why Defaults Are Rising

Defaults don’t increase in isolation; they build when multiple pressures converge. In today’s market, four forces are pushing households closer to the edge: higher renewal costs, already stretched consumer credit, the expiration of pandemic-era low interest rates, and price pressures from US tariffs and the reconfiguration of global supply chains.

Borrowers who secured mortgages in 2020–21 at rates under 2% are now seeing renewal offers in the 4–5% range. OSFI put it plainly in its 2025 commentary that mortgage delinquencies are expected to continue to rise through 2025, particularly in large urban markets.

Consumer credit stress exacerbates this problem. Equifax Canada noted that “non-mortgage delinquencies have reached levels not seen since 2009.” Families juggling late car or credit card payments are in a weaker position to absorb higher mortgage bills.

Regional and Market Impacts

Canada isn’t experiencing a uniform rise in mortgage defaults; instead, it is concentrated in certain regions. A recent Equifax report shows Ontario remains a hotspot for financial distress, with the 90-plus days delinquency rate hitting 1.75%, which is 0.152 percentage points above the national average. Alberta also stands out, posting a delinquency rate of 1.98%, or 0.385 percentage points above the national average.

Younger Canadians are especially squeezed; those under 36 saw their average non-mortgage balance increase to more than $14,000, and their 90-plus days delinquency rate surged 19.7% year-over-year. This indicates that, despite overall delinquency levels appearing to plateau, the financial gap is widening for segments with limited headroom, particularly in high-cost regions such as Ontario and Alberta.

Defaults aren’t rising evenly. Areas with higher cost of living, steeper debt ratios, and a younger demographic facing rising non-mortgage delinquency are bearing disproportionate strain. That’s the risk behind headlines about stabilizing delinquency as they mask deeper, uneven pressures beneath the surface.

Broader Price Pressures from Tariffs and Global Supply Chains

Beyond mortgages and credit, household budgets are also being squeezed by rising prices on everyday goods. Recent US tariffs on Canadian exports, combined with the reconfiguration of global supply chains, are adding costs across food, energy, and manufactured products. These pressures act like a stealth tax on Canadian households; even if wages keep pace, essentials like groceries and fuel are consuming a larger portion of each paycheque.

The Bank of Canada has acknowledged that global trade uncertainty makes it more challenging to return inflation to its target. As long as these price shocks persist, the central bank is less likely to cut rates, which means mortgage payments will remain elevated for an extended period. For borrowers already facing renewal shock, higher household costs from tariffs and supply disruptions shrink the cushion they need to stay current on mortgages.

Impact of Interest Rates on Renewals

Mortgage rates in Canada have a disproportionate impact on household budgets. A slight change in percentage points can result in hundreds more in monthly mortgage costs, often erasing any gains from wage growth or tax relief.

The Bank of Canada has maintained its policy rate at 2.75% since its announcement on March 12th. While this avoided another rate hike, it locked borrowers into a reality of elevated costs. As the Bank itself noted, “Higher interest rates are affecting more households as their mortgages renew.”

To see the payment renewal shock policymakers warn about in action, let’s consider a $100,000 adjustable-rate mortgage (ARM) advanced at 25-year amortization with a rate of prime – 1% in March 2020, when the prime rate in Canada fell to 2.45%. This mortgage continues to follow the Bank of Canada’s policy rate adjustments until March 2025, when it is renewed into a 5-year fixed rate at 3.89%. Let’s also track the exact month-by-month change for a fixed payment variable-rate mortgage (VRM).

• By mid-2022, the ARM borrower was already paying almost $100 more per month than the VRM borrower, but they were still reducing their outstanding balance faster.
• By July 2023, the VRM borrower’s payment was entirely consumed by interest, with zero principal repayment, and the remaining balance had hardly moved.
• At renewal in March 2025, the ARM balance had dropped to approximately $86,000, while the VRM balance remained above $91,000. The VRM borrower also faced a sharp jump in payments when the renewal recalculation happened, reducing the remaining amortization back to 20 years.

Mortgage Strategies to Reduce Risk

While rising payments are unavoidable for many, borrowers are not powerless. By adjusting how they structure their mortgage, or even planning for renewal early, households can significantly reduce stress. Strategies vary depending on whether you’re buying, renewing, or refinancing.

For Homebuyers

Homebuyers today face higher borrowing costs, but tools exist to make mortgages more manageable.

• Insured mortgages: By using mortgage insurance, buyers may qualify for lower mortgage rates and reduce their monthly payment despite paying a premium. Insured mortgages are especially valuable in high-cost regions.
• Longer amortizations: Extending the amortization to 30 years reduces monthly payments, providing households with breathing room, even if it means paying more interest over the long term.

For Renewers

For those already in the market, renewal is where the most pressure is being felt. Planning can prevent painful surprises.

• Shop early: Securing a rate hold months in advance can shield borrowers from unexpected increases.
• Switch lenders without re-qualifying: An option available to insured lending, OSFI recently confirmed that uninsured borrowers can switch lenders at renewal without re-qualifying if their debt service costs remain unchanged. Removal of the stress test when switching mortgages between lenders boosts competition and creates opportunities for better deals.
• Budget for higher costs: Using the BoC’s estimate of 10% higher payments as a guide, households should run their numbers well before renewal to see how their finances will adapt.

For Refinancers

Refinancing is increasingly being used as a financial survival tactic rather than a tool for equity withdrawal.

• Re-amortize: By stretching out the remaining amortization, payments can be pulled back into a manageable range.
• Consolidate debt: Wrapping higher-interest credit cards or personal loans into a mortgage often reduces total monthly obligations, despite higher long-term costs.
• Expect more scrutiny: Lenders are tightening requirements as defaults rise. Files that were approved in 2021 may now be subject to additional questions or terms and conditions.

Role of the Bank of Canada and Regulators

The Bank of Canada has acknowledged that its interest rate policy is restricting households’ budgets. “About 60% of renewing households in 2025 and 2026 will face higher payments.” The higher interest payments are a deliberate trade-off to make the central bank’s monetary policy effective, placing stress on household budgets to cool inflationary pressures.

At the same time, CMHC and private insurers offer a more reassuring view. CMHC reported insured arrears at 0.30% in Q1 2025, while Canada Guaranty’s delinquency rate was 0.13%. As CMHC summarized, “Mortgage delinquency rates have increased in Ontario and British Columbia but remain low overall.”

FSRA reminds us in it’s most recent Private Lending Report that private borrowers face a different reality: “This increase in the mortgage delinquency rate underscores the growing financial strain on individuals who rely on Non-Bank Lenders, many of whom may struggle with higher interest rates, short-term financing, limited refinancing options, and a lack of an exit strategy to transition back to a traditional mortgage.” This helps explain why stress is emerging more rapidly in certain market segments.

Foreclosures vs. Power of Sale in Canada

The process for recovering a property after default depends on where you live. In Ontario, New Brunswick, Prince Edward Island, and Newfoundland and Labrador, lenders typically use power of sale, which allows them to sell the home without going through the courts. For borrowers, that means timelines are shorter than expected, especially with private lenders who may act quickly once payments are missed. In Québec, Alberta, British Columbia, Manitoba, Saskatchewan, and Nova Scotia, as well as in the territories, the process is a judicial foreclosure, which requires court approval.

Frequently Asked Questions (FAQ) About Rising Mortgage Delinquencies and Foreclosures

Final Thoughts

Mortgage defaults and delinquencies are climbing as Canadians face renewal at higher rates, but they remain historically low and concentrated in specific markets. The actual household stress continues to unfold over the course of 2025 and 2026, when most borrowers face higher monthly payments due to payment shock at renewal.

For borrowers, preparation is the best defence. Homebuyers can lean on insured products and longer amortizations, renewers can shop early and avoid the mortgage stress test to switch lenders. Those looking to refinance can focus on re-amortization or debt consolidation.

To find the mortgage best suited to your unique needs and financial situation, connect with nesto mortgage experts. We’ll help you navigate renewal costs, compare your options, and build a long-term strategy to protect your home and finances.

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Why Choose nesto

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

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