A new report from the Canada Mortgage and Housing Corporation (CMHC) highlights looming challenges for Canadian homeowners as more than a million fixed-rate mortgages are set to renew in 2025. These mortgages, originally signed during a period of historically low interest rates at or below 1%, will now face significantly higher rates, with the Bank of Canada’s key rate currently at 3.75%.
The report estimates that 1.05 million fixed-rate mortgages coming due in 2025 were contracted when rates were at their lowest. With an additional 980,000 mortgages set to renew in 2026, homeowners will feel the financial strain of increased payments.
Rising Listings and Distressed Sales
Economist Michael Davenport from Oxford Economics predicts a surge in home listings in late 2024 and early 2025 as financially stressed homeowners put their properties on the market. “Renewals will lead to a faster rise in resale listings relative to demand,” he noted.
The real estate market remains relatively liquid, particularly in cities like Toronto, where homes can sell quickly. This dynamic may provide an alternative for struggling homeowners to avoid foreclosure. However, rising defaults and foreclosures in the private lending sector, where rates and risks are higher, are already contributing to distressed sales.
Increasing Delinquencies
CMHC’s report reveals a growing delinquency trend among alternative lenders. In the second quarter of 2024, the delinquency rate for single-family homes rose to 5%, up from 1.7% in late 2022. Foreclosure rates also climbed to 3.5% from 1.3% over the same period. While overall mortgage delinquency rates remain low at 0.19%, they are on the rise, driven by increasing late payments on credit cards and car loans—often leading indicators of mortgage delinquency.
Household Vulnerabilities
The rising cost of living and elevated debt levels have tightened household budgets. CMHC Deputy Chief Economist Tania Bourassa-Ochoa warned that higher debt-servicing costs and financial pressures are creating significant vulnerabilities for Canadian homeowners.
Hope from Interest Rate Cuts
There is some relief on the horizon. The Bank of Canada, which began cutting interest rates in June 2024, has lowered the key rate from 5% to 3.75%, with another cut anticipated before the year’s end. These rate reductions are expected to help homeowners manage upcoming renewals and prevent a sharp rise in defaults that could destabilize the housing market further.
“The rapid rate cuts have prevented a potential deep recession,” Davenport said, adding that continued reductions could ease the financial burden on mortgage holders.
As 2025 approaches, homeowners, lenders, and policymakers will need to navigate a shifting market marked by financial strain and increased listings, with interest rate policies playing a crucial role in stabilizing the housing sector.
