Canadians Are Keeping Up With Mortgage Payments

The share of borrowers behind on monthly mortgage payments is near historicals lows despite an environment of heightened interest rates and a wave of renewals. 

By Josh Sherman | 3 minute read

Compared to borrowers in other advanced economies such as the U.S. and U.K., Canadians have mostly found a way to shoulder higher borrow costs without missing mortgage payments.

Interest rates remain well above the depths reached during the pandemic despite two recent cuts from the Bank of Canada — yet only a small minority of mortgage borrowers are falling behind on payments, experts note.

Just 0.18% of mortgage payments owed to banks were in arrears — or late by at least three months — as of April, according to recent data from the Canadian Bankers Association. “Despite the current economic environment characterized by higher interest rates, mortgages in arrears in Canada are at the lowest level in decades,” says the CBA in a statistical report. 

“Canadian borrowers have consistently maintained low rates of mortgages in arrears even throughout challenging periods such as the Global Financial Crisis and the COVID‑19 pandemic,” the CBA continues, noting Canada’s arrears rate is lower than what is being observed in the U.S. (1.52%) and the U.K. (0.74%). Though arrears are tracking near historical lows, BMO Senior Economist Sal Guatieri does anticipate that more Canadians will fall behind on mortgage payments, as does CMHC.

Borrowers today are renewing at much higher rates than several years ago, when many mortgages originated. In fact, CMHC estimates that 2.2 million borrowers will face shocking rate increases — resulting in carrying costs rising 30 to 40% — when they renew their mortgages this year and next. However, Guatieri suggests a major storm isn’t brewing for the Canadian economy. “For the 36% of households with a mortgage, the vast majority continue to make payments, though many have had to cut spending and tap savings to do so,” notes Guatieri. “Though rising, there’s reason to believe the arrears rate won’t breach long-run norms,” he continues.

Lenders, he says, have let some borrowers extend their amortizations to cushion against increasing payments (by extending the amortization, or length of the loan term, payments are lowered as they are spread out over a longer period of time).

Other borrowers are considering renting out part of their homes as a mortgage-helper Grant Allardyce, a Wahi Partner Realtor, tells Wahi. “There are people who are coming up to renewal that are realizing that they can’t afford their home anymore,” he says. “Maybe, if you were to rent out your basement, you can afford [it].”

Looking ahead, meanwhile, lower immigration levels and a stronger economy should result in a decline in the jobless rate, which has been growing of late, Gautieri suggests. “More job seekers, rather than big layoffs, explain the spike in the jobless rate,” he says.

CMHC expects further interest rate cuts to provide borrowers some relief as well as stimulate the economy next year. “This economic momentum will help reduce potential job losses, which could otherwise have led to more mortgage arrears,” writes Tania Bourassa-Ochoa, CMHC’s deputy chief economist. 

The CBA’s mortgage-arrears data, which shows a low level of mortgage delinquency, supports previous findings from a Wahi survey.

The survey found that only 11% of Canadian homeowners who are planning to sell their properties in the coming years are doing so at least partly because of financial strain or debt repayments.

Downsizing was the most common driver of future selling plans, with 37% of homeowners citing that as their motivation. Upsizing and relocation were also popular reasons cited by 25% of respondents, respectively (those surveyed could choose multiple answers).

Depending on location, some borrowers have been hit harder than others.

In more affordable provinces, such as Alberta and Saskaetchewan, as well as those in Atlantic Canada, Guatieri says the share of borrowers having trouble meeting mortgage obligations is flat or even declining. Rising delinquencies are most common in B.C. and Ontario, where affordability is stretched.

“Canadian mortgage arrears will likely rise moderately further, but stay within normal bounds as lower interest rates support a modest recovery in the economy and house prices, and limit the strain of mortgage resets,” Guatieri writes.