The findings indicate that nearly 60 per cent of homeowners with existing mortgages are likely to be affected, even though interest rates are expected to decline gradually over the coming years. Many current mortgages were secured during periods of historically low interest rates.
As those terms expire, homeowners will transition into a market where rates remain elevated compared to previous years. In 2025, the average payment rise is projected to be around 10 per cent compared to levels in December 2024. For 2026, the increase is expected to moderate slightly, averaging around six per cent.
The scale of impact will vary depending on the type of mortgage. Fixed-rate mortgages, particularly five-year terms, are expected to see the largest jumps, with payments rising between 15 and 20 per cent. These account for roughly 40 per cent of all Canadian mortgages and are the primary drivers of the overall increase in payment obligations.
On the other hand, some borrowers may experience relief. Homeowners with variable-rate mortgages that adjust monthly could see their payments drop by five to seven per cent, thanks to expected interest rate declines. However, those with variable-rate mortgages that feature fixed monthly payments may face uneven outcomes. In this group, around 10 per cent are expected to face dramatic increases exceeding 40 per cent by 2026, while a quarter may benefit from decreases of at least seven per cent.
The rising payments are also set to impact borrowers’ mortgage debt service (MDS) ratios, which is the proportion of income dedicated to mortgage payments. Those facing increases will see their median MDS ratio climb from 15.3 per cent in December 2024 to 18 per cent by late 2026. Conversely, those with decreasing payments are projected to experience a drop in their MDS ratio from 19.7 to 18.6 per cent.
These estimates assume no changes in household income. However, it’s likely many borrowers have seen income growth since their last mortgage term, potentially helping to offset some of the pressure. The bank also based its projections on the assumption that borrowers retain the same mortgage type and amortisation period at renewal.
Although the outlook may appear challenging for many homeowners, the Bank of Canada notes that some borrowers may be able to reduce their financial burden by renegotiating their terms or extending their amortisation schedules.
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