Toronto faces the strongest and most persistent increase in delinquency risk
In Toronto’s struggling housing market, the mortgage arrears rate in the region has more than quadrupled from post-pandemic lows. While arrears remain low, they’re projected to continue rising over the next year. The acceleration in mortgage arrears in Toronto is being driven by several interconnected pressures, alongside the reset of mortgage rates for many homeowners:
- Higher household debt levels due to high housing prices.
- Concentrated “mom-and-pop” investor activity facing rising carrying costs and softening rents, leading to negative cash flow positions.
- Declining home prices and slower sales, reducing the ability to sell quickly or rely on equity during financial challenges.
- A weaker labour market in the Greater Toronto Area (GTA) compared to other major CMAs, limiting households’ ability to manage rising mortgage payments.
Delinquency pressures in the GTA are expected to remain elevated throughout 2026.
Vancouver shows a moderate but steady rise in arrears
High debt levels and softening resale market liquidity are contributing to growing financial pressures in Vancouver. Rising carrying costs and weaker resale conditions are still driving arrears upward—but at a slower pace than in Toronto.
The rest of Canada tells a different story:
- Montréal: Delinquency risk remains stable. The region’s outlook is driven mainly by consumer credit stress rather than by housing market conditions, which remain relatively tight.
- Prairies: Calgary faces a moderate risk, while Edmonton is more vulnerable due to labour market sensitivities.
- Ottawa, Winnipeg and Halifax: These regions see smaller increases in arrears due to local credit utilization and economic conditions.
Pandemic-era first-time homebuyers are the group most at risk
The arrears story isn’t just about geography. Across the country, certain borrower groups are showing greater signs of financial pressure than others. The main risk factors include:
- Highly leveraged homebuyers, meaning borrowers who took on large debt levels relative to their income.
- First-time buyers and other recent homebuyers often have limited equity, with their mortgage making up most of their home’s value.
- Households that purchased at peak prices and historically low interest rates, or simply put, pandemic-era homebuyers.
First-time buyers from the pandemic period in high-priced regions are especially vulnerable. When renewing their mortgages for the first time, they face a sharp increase in interest rates on already high debt levels, which places significant strain on their budgets.
For now, people who bought homes during the pandemic (2020 to 2021) or shortly after (between 2022 and 2024) are still falling behind on their mortgages less often than the average homeowner. However, Equifax data shows that arrears are rising more quickly among these borrowers, underscoring their heightened vulnerability in the current rate environment.
The impact so far of the mortgage renewal wave
More than 1.5 million households have already renewed their mortgages at higher interest rates. Another million are set to sign new terms in the coming year. For households facing these higher rates, the pressure on budgets has been significant.
Higher payments have reduced many people’s ability to save, squeezed discretionary spending and influenced how they manage both new and existing credit. As households adjust to tighter budgets, this financial strain has led to changes in credit consumption behaviour.
Recent CMHC data shows that the number of high-risk borrowers—and the amount of debt they hold—has grown since 2021. While debt has increased across all groups, it’s rising fastest among those most likely to miss payments or face bankruptcy.
Since 2024, borrowers with low credit scores appear to be pulling back from new debt, possibly due to tighter access to credit.
Together, these trends suggest a return to pre-pandemic risk levels. They also indicate that more households may be becoming overstretched as they adjust to higher interest rates and the rising cost of living. This highlights growing financial vulnerability.
Mortgage arrears are rising but remain below historical levels
With financial pressure increasingly weighing on households in a very tangible way, mortgage arrears have been steadily increasing nationally since late 2023. This trend is evident across the many mortgage arrears indicators in Canada, each coming from different data sources. While this upward trend is clear, mortgage arrears levels remain low compared to earlier periods of economic difficulty. This reflects several underlying factors:
1. Mortgage borrowers continue to show strong resilience.
Canadian households have been playing financial Tetris very well, adjusting their budgets and even making some sacrifices to make ends meet. As long as income remains steady, most households are staying on track. Historically, however, rising mortgage arrears have been closely tied to increases in unemployment. Without stable income, even the most carefully structured budgets can be quickly disrupted.
2. Homeowners have prioritized short-term affordability over long-term debt exposure.
At renewal, most mortgage consumers chose to increase their amortization period to lower their monthly mortgage payments. This has kept payment increases smaller than expected, even though it means paying more interest and carrying their mortgage for a longer time. Choosing longer amortizations suggests that buyers are prioritizing either accessing homeownership or reducing immediate debt pressures over optimizing long-term financial health. As housing has become increasingly unaffordable, this trend highlights a growing reliance on short-term liquidity pressures at the expense of long-term wealth accumulation.
3. Income growth and labour market conditions have been generally solid…until recently.
While Canada’s labour market has softened, with unemployment rising, this increase has been concentrated among younger workers and recent immigrants—groups that are typically not yet homeowners.
4. Regulation has played an important role in limiting mortgage arrears growth.
Mortgage arrears could have increased more significantly and at a faster pace without regulation. Canada has gone through a wave of regulatory tightening since the global financial crisis (see Appendix 2). Even though Canadian homeowners felt the 2008 to 2009 recession less intensely than our southern neighbors, the federal government introduced a series of changes. The goal was to protect overall financial stability in Canada.
Notably, mandatory mortgage stress testing was introduced, in 2016 for insured mortgages and 2018 for uninsured mortgages. The stress test requires borrowers to qualify for their loans at higher potential interest rates. This means that when mortgage consumers qualified for their mortgage loans a few years ago, their ability to handle higher payments was assessed based on their income at the time. This measure helped ensure they could afford a rate increase.
Fast-forward almost a decade, and recent trends show that the stress test has served its purpose. Even with interest rate shocks, arrears have risen gradually rather than sharply. Without the safeguards of the stress test, the increase in arrears could have been much steeper. That said, it’s not bulletproof. As outlined earlier, risks are becoming more evident in certain regions, like Toronto and, to some extent, Vancouver.
What do we expect next?
Vulnerabilities are becoming apparent in high-priced markets like Toronto and Vancouver and among pandemic-era, highly leveraged buyers. However, the pressure is not limited to these groups. Regions with high exposure to tariffs are also increasingly at risk. Job losses are already evident in certain industries and regions heavily impacted by tariffs. We may see a growing number of households struggling to meet both non-mortgage and mortgage payments.
As we turn the page to 2026, it’s important to note that the mortgage delinquency story is not so much a national one but a much more localized and concentrated one.
The resilience demonstrated by Canadian borrowers through economic shocks in the past decades is being tested. The strong foundations of Canada’s financial system continue to point to overall stability.
Looking ahead, close regional monitoring will be essential. This approach will help identify early pressures. It will also ensure that targeted support is provided to borrower groups most vulnerable to financial strain during these more uncertain times.
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