60 per cent of Canadians could face higher mortgage payments by 2026: Bank of Canada
Roughly 60 per cent of Canadian mortgage holders will face higher monthly payments when their loans come up for renewal in 2025 and 2026, according to a new Bank of Canada report.
In the latest staff analytical note, the bank says that although mortgage interest rates are expected to gradually decline, most borrowers will still see payment increases relative to their current contracts — many of which were signed during periods of lower interest rates.
The report estimates that in 2025, homeowners renewing their mortgages will see an average increase of 10 per cent in their monthly payments compared to December 2024 levels.
In 2026, the increase is expected to moderate to around six per cent.
The payment increases will vary depending on mortgage type. According to the bank, borrowers with fixed-rate mortgages, especially those with five-year terms, are likely to experience the steepest jumps in payments ranging between 15 and 20 per cent on average.
These borrowers make up 40 per cent of all mortgages in Canada and are driving the overall upward pressure on renewal payments.
While the majority of borrowers will see their payments rise, the bank's analysis shows that not all will be affected equally.
For homeowners with variable-rate mortgages that adjust monthly, payments are projected to decrease by five to seven per cent. Meanwhile, those with variable-rate mortgages with fixed payments may see mixed outcomes: around 10 per cent of these borrowers are expected to face increases of more than 40 per cent in 2026, while 25 per cent may see decreases of at least seven per cent.
Strain on households budgets
Borrowers facing payment increases at renewal are expected to see a sharper rise in their mortgage debt service (MDS) ratio — the share of income spent on mortgage payments — compared to those with payment decreases, the Bank of Canada says.
For those with rising payments, the median MDS ratio is projected to climb from 15.3 per cent in December 2024 to 18 per cent by the end of 2026. By contrast, borrowers with decreasing payments will see their median MDS ratio fall from 19.7 per cent to 18.6 per cent.
These projections assume no change in income though the bank notes many borrowers likely experienced income growth since their last mortgage term — helping them better manage higher payments.
Methodology
The bank based its analysis on the assumption that borrowers maintain the same type of mortgage and amortization period at renewal.
The amortization period is the process of gradually paying off a debt over a set period of time through regular payments.
The bank also used market-implied expectations for interest rates as of June 17 to model future payment scenarios.
Despite the anticipated financial pressure, the bank noted that some borrowers may not experience changes if they proactively renegotiate terms or adjust their amortization schedules.
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