OTTAWA, ON – A significant wave of mortgage payment increases is set to impact Canadian homeowners, with approximately 60 per cent of mortgage holders expected to face higher monthly payments when their loans come up for renewal in 2025 and 2026. This comes according to a new analysis from the Bank of Canada, signaling a period of adjustment for many households, even as interest rates are anticipated to gradually decline.
The Bank of Canada’s latest staff analytical note highlights that despite a projected moderation in interest rates, most borrowers will still experience payment increases compared to their current contracts, many of which were secured during periods of historically low rates. The report estimates that homeowners renewing in 2025 could see an average increase of 10 per cent in their monthly payments relative to December 2024 levels, while those renewing in 2026 are projected to face a still-substantial six per cent increase.
Fixed-Rate Mortgages to Bear the Brunt of Increases
The impact of these renewals will not be uniform across all mortgage types. The Bank of Canada indicates that borrowers with fixed-rate mortgages, particularly those with five-year terms, are likely to experience the steepest jumps in payments, ranging between 15 and 20 per cent on average. This group accounts for 40 per cent of all mortgages in Canada and is a primary driver of the overall upward pressure on renewal payments.
To illustrate the potential financial shift, Ratehub.ca offers a glaring example: a homeowner who purchased an average-priced home in 2020 with a low fixed mortgage rate could see their monthly payments rise by approximately $424 upon renewal this summer. This translates to nearly $5,100 more per year, representing a 19 per cent increase in costs, even if the mortgage balance has decreased over time.
Variable Rates Offer Some Relief for Some
In contrast to fixed-rate holders, homeowners with variable-rate mortgages that adjust monthly are projected to see their payments decrease by five to seven per cent. This potential relief is attributed to recent rate cuts from the Bank of Canada. Ratehub.ca estimates that a variable-rate borrower renewing this summer could see their mortgage payments drop by about $69 per month, or nearly $830 per year.
However, the outlook for those with variable-rate mortgages with fixed payments is more varied. The Bank of Canada’s analysis suggests that around 10 per cent of these borrowers could face increases of more than 40 per cent in 2026, while a quarter – 25 per cent – may see decreases of at least seven per cent. This wide range largely reflects individual principal payments made since origination or the previous renewal.
Household Budgets Under Scrutiny
The expected payment increases will undoubtedly place strain on household budgets. The Bank of Canada anticipates a sharper rise in the mortgage debt service (MDS) ratio – the share of income spent on mortgage payments – for those facing payment increases. For these borrowers, 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. This contrasts with borrowers experiencing decreasing payments, whose median MDS ratio is expected to fall from 19.7 per cent to 18.6 per cent.
While these projections assume no change in income, the Bank of Canada notes that many borrowers likely experienced income growth since their last mortgage term, which could help them manage higher payments.
New Buyers Relying on Financial Support
Beyond existing mortgage holders, the housing market survey from Mortgage Professionals Canada (MPC) provides insight into the challenges faced by new buyers. Their 2025 “State of the Housing Market” survey, which polled approximately 2,000 Canadians, reveals that 70 per cent of buyers in the past two years would not have been able to purchase their home without financial assistance. Across all buyers who received support, 58 per cent shared this sentiment.
The MPC report also underscores growing anxiety among current mortgage holders regarding upcoming renewals. With 74 per cent of mortgage holders set to renew within the next three years, one in five express worry about the financial implications of these renewals.
In this volatile lending landscape, Canadians are demonstrating a clear preference for stability, with 68 per cent of those surveyed opting for fixed-rate mortgages. Despite this, younger borrowers and those with variable rates are more inclined to make additional or more frequent payments.
Bank of Canada Methodology and Outlook
The Bank of Canada’s analysis is based on certain assumptions, including that borrowers maintain the same type of mortgage and amortization period at renewal. The bank also utilized market-implied expectations for interest rates as of June 17 to model future payment scenarios. The enhanced dataset, known as RESL2, which captures a snapshot of every outstanding residential mortgage each month, allowed for a more accurate assessment by accounting for prepayments since the last renewal or origination.
Despite the anticipated financial pressure, the Bank of Canada notes that some borrowers may mitigate these changes by proactively renegotiating terms or adjusting their amortization schedules. “Overall, we do not expect upcoming mortgage renewals will lead to a severe worsening of financial stress for affected borrowers, holding everything else constant,” the Bank of Canada stated in its report, also noting that “most borrowers will likely have higher income at renewal and should face interest rates below what they were stress-tested for.” However, the report acknowledges that “some borrowers with higher payments at renewal will face challenges. Many of them will need to change their spending to manage higher mortgage payments. And some may struggle to meet their other financial obligations.”
