A new report from the Canada Mortgage and Housing Corporation warns that over a million homeowners will face substantially higher interest rates when their mortgages come up for renewal in 2025. Approximately 85% of these fixed-rate mortgages were initially secured when the Bank of Canada’s rate was at or below 1%, contrasting sharply with the current rate of 3.75%.
The report highlights a significant wave of renewals approaching, with 1.2 million fixed-rate mortgages due in 2025 and another 980,000 in 2026. Oxford Economics economist Michael Davenport predicts this could trigger increased housing market listings as financially stressed homeowners opt to sell their properties, particularly in late 2024 and early 2025. However, he notes that loosening mortgage guidelines and lower interest rates should lead to increased housing demand by mid-2025.
Read: Canadian Mortgage Delinquency Rates Expected to Rise Through 2025
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Warning signs are already emerging in the private lending sector, where mortgage defaults and foreclosures are rising. The second quarter of 2024 saw the delinquency rate for single-family homes surge to 5% from 1.7% in late 2022, while foreclosures increased to 3.5% from 1.3%.
CMHC’s deputy chief economist Tania Bourassa-Ochoa notes that the tight and liquid real estate market, especially in Toronto, offers struggling homeowners the option to sell before facing foreclosure. She emphasizes that higher living costs and increased debt-servicing expenses have significantly impacted household budgets, creating considerable vulnerability for homeowners.
While the overall mortgage delinquency rate has risen to 0.19%, it remains below the pre-pandemic level of 0.28%. Notably, other forms of debt typically show stress first, with significant increases in late payments for credit cards, car loans, and lines of payment serving as leading indicators for future mortgage delinquencies.
However, the Bank of Canada has implemented four consecutive rate cuts, bringing the key interest rate down from 5% to 3.75%, with another reduction expected this year. According to Davenport, this rapid rate-cutting cycle may help prevent a sharp increase in defaults and avert a potential deep recession.
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