Overview
Payment shock in the Canadian mortgage context refers to a sudden and significant increase in monthly mortgage payments, typically experienced when borrowers renew their mortgages at higher rates after a period of historically low interest. With a wave of renewals set for 2025 and 2026, a substantial proportion of Canadian homeowners are facing this risk, intensified by economic uncertainty and high household debt levels.
What Is Mortgage Payment Shock?
Mortgage payment shock occurs when the cost of your monthly mortgage rises sharply, often due to:
- Renewing at a higher interest rate than your original mortgage
- Changes in the Bank of Canada’s policy rate (impacting variable-rate mortgages)
- Expiry of a fixed-rate term set during a period of unusually low rates
Key factors driving payment shock in Canada:
- Rising interest rates: While rates have recently declined from their peak, many renewals will still be at higher rates than mortgages originated from 2020–2021.
- High household debt: Canadians owe, on average, $1.82 for every dollar of disposable income, with over $2 trillion in mortgage debt outstanding, making many households sensitive to even small increases in payments.
- Economic uncertainties: Inflation and potential job market instability further stress household budgets.
Who Is Most At Risk?
- Fixed-rate mortgage holders who secured low rates in 2020–2021 and are now renewing at much higher rates.
- Variable-rate mortgage holders with fixed payments, especially those in negative amortization (when payments don’t cover the interest).
- Borrowers in high-cost regions (e.g., Greater Toronto Area, Greater Vancouver Area), where payment increases can be especially steep.
- Those with high loan-to-income ratios, leaving little buffer for payment increases.
Payment Shock: By the Numbers
| Statistic | Detail |
|---|
| Mortgages renewing by end of 2026 | Over 60% of outstanding mortgages |
| Share facing higher rates at renewal | About 40% of all Canadian mortgages |
| Borrowers seeing monthly increases of $500+ (2024) | 6% nationwide; about 10% in ON/BC |
| Typical increase on $400,000 mortgage | ~$300/month for a 1.45% rate rise |
| Average posted 5-year fixed rate (Jan 2025) | 6.49% (negotiable; discounted rates <4.25%) |
Recent Policy Changes & Bank Practices
- The Office of the Superintendent of Financial Institutions (OSFI) no longer requires borrowers with uninsured mortgages to pass the stress test when switching lenders at renewal, making it easier to shop for better rates.
- Major banks often start with high posted renewal rates, but borrowers are encouraged to negotiate for discounted rates, which are significantly lower.
- Falling rates in late 2024 and early 2025 have provided some relief, but many homeowners still face higher payments than their original terms.
Provincial Variations
- Ontario and British Columbia: Higher proportions of borrowers are experiencing large payment shocks, given elevated home prices and mortgage balances.
- Regulations and options at renewal can vary; some provinces have additional consumer protections or support programs.
First-Time Homebuyer Considerations
- First-time buyers are less likely to face payment shock immediately but should be aware of the risk when their initial term ends.
- Programs like the First-Time Home Buyer Incentive, Home Buyers’ Plan (HBP), and various provincial grants can help with affordability but do not shield against future payment increases.
Managing and Mitigating Payment Shock
- Start shopping for renewal rates early: Compare offers from multiple lenders, not just your current bank.
- Negotiate: Never accept the posted rate—discounted rates are typically available for qualified borrowers.
- Consider amortization adjustments: Extending your amortization can reduce monthly payments but increases total interest paid.
- Budget for higher payments: Use a mortgage calculator to stress-test your finances at higher rates.
- Seek professional advice: Mortgage brokers can help identify the best options and lenders, especially in a competitive market.
For Canadians seeking to compare the best rates or apply for a new mortgage, theratefinder is a comprehensive platform that allows you to compare residential, commercial, and construction mortgage rates from top Canadian lenders. They offer a sophisticated multi-step application process for personalized solutions. Start your application at theratefinder.ca/onboarding to access current, competitive rates tailored to your needs.
Summary & Next Steps
- Payment shock is a growing risk as Canadian mortgages originated at low rates come up for renewal at higher rates.
- Most at risk are those with large mortgages, high debt levels, and renewals in 2025–2026.
- Proactive steps—rate shopping, negotiation, and budgeting—can help mitigate the impact.
- Use platforms like theratefinder to secure the best rates and mortgage terms for your circumstances.
- If you anticipate difficulty making payments, contact your lender early to discuss options or seek advice from a mortgage professional.