Understanding the Current Financial Landscape

Over the past few years, Canadians have endured rising inflation, interest rate hikes, and economic uncertainty. While inflation is now cooling and interest rates are gradually decreasing, mortgage delinquencies and financial stress are rising at an alarming rate. In Ontario alone, 11,000 homeowners missed a mortgage payment last quarter—three times higher than two years ago.

At the heart of the issue is the wave of mortgage renewals happening between 2024 and 2026, impacting three-quarters of all outstanding mortgages in Canada. Many homeowners who secured historically low interest rates in 2021 are now facing significantly higher renewal rates. This payment shock is stretching household budgets, increasing defaults on mortgages, car loans, credit cards, and other debts.

With these financial pressures mounting, how can Canadians prepare and protect themselves? Here’s what you need to know and the steps to take next.

Why Are Defaults Rising Despite Falling Interest Rates?

Many assume that falling interest rates should make mortgages more affordable, yet we’re seeing an increase in missed payments and financial distress. Here’s why:

1️⃣ The Mortgage Renewal Shock

• 2021 was the biggest mortgage origination year in Canadian history, with many homeowners securing fixed-rate mortgages at historically low rates (as low as 1.5%).
• However, the most common mortgage term in Canada is 3 to 5 years, meaning that millions of homeowners are now renewing at rates closer to 4.5% or higher.
• For a typical homeowner who bought an $800,000 home in Ottawa in 2021, monthly mortgage payments could increase by $350 or more upon renewal.

2️⃣ Household Debt Levels Are at Record Highs

• The average Canadian is carrying $222,000 in total debt (excluding mortgages), with growing balances on credit cards, car loans, and lines of credit.
• Many homeowners are prioritizing mortgage payments while falling behind on other debts, leading to a sharp increase in missed payments on credit cards and personal loans.

3️⃣ Rising Costs of Living

• Although inflation has eased, the cost of essential goods and services remains significantly higher than pre-pandemic levels.
• Many younger Canadians are struggling as wages have not kept pace with inflation, leading to financial strain—particularly for those who entered the housing market recently.

How to Prepare for Mortgage Renewal and Manage Debt Effectively

With millions of mortgage renewals ahead and continued financial uncertainty, now is the time to take action. Here’s how you can prepare yourself financially and minimize the risks of financial strain.

1️⃣ Plan Early for Mortgage Renewals

• Start discussing your renewal options with your lender at least 6-12 months in advance.
• Consider extending your amortization period (e.g., from 25 years to 30 years) to reduce monthly payments.
• Negotiate with different lenders and compare rates—your existing lender may not offer the best renewal terms.
• If possible, make extra payments now to reduce the principal before renewal.

2️⃣ Review and Restructure Your Debt

• Prioritize high-interest debt repayments (e.g., credit cards, personal loans) before they spiral out of control.
• Explore debt consolidation options to reduce monthly payments and simplify finances.
• If struggling with payments, contact creditors early—many lenders offer hardship programs or flexible payment arrangements.

3️⃣ Increase Emergency Savings

• Build an emergency fund to cover at least 3-6 months of essential expenses, including mortgage payments.
• Reduce discretionary spending to free up cash flow and prepare for unexpected financial challenges.

4️⃣ Consider Renting or Downsizing If Necessary

• If mortgage renewal payments will be unaffordable, consider selling and renting to avoid defaulting on payments.
• Downsizing to a more affordable property may be a strategic move for those struggling with high mortgage costs.

5️⃣ Keep a Close Eye on Interest Rate Trends

• Rates are expected to decline further in the coming years, but they will likely remain higher than 2021 levels.
• If you’re on a variable rate mortgage, assess whether locking into a short-term fixed rate is a better option.

Looking Ahead: Is There Any Good News?

Despite the challenges, there are a few silver linings:

✔ Interest rates are projected to decline further, offering potential relief for future mortgage renewals.
✔ Most Canadians are still making their payments on time, meaning financial distress is rising but remains manageable.
✔ Home prices remain stable, reducing the risk of homeowners being “underwater” (owing more than their home is worth).

However, economic uncertainty remains, and with millions of mortgages up for renewal between now and 2027, the financial landscape will remain challenging for many Canadians.

Final Thoughts: Take Action Now to Secure Your Financial Future

The key takeaway? Don’t wait until renewal time to address financial challenges. Whether you’re facing a mortgage renewal, rising debt, or general financial strain, taking proactive steps today can help you navigate the uncertainty ahead.

✔ Plan ahead for mortgage renewal and negotiate better terms.
✔ Reduce high-interest debt and manage payments wisely.
✔ Build an emergency fund to cushion against financial stress.
✔ Stay informed about interest rate trends and adjust strategies accordingly.

By making smart financial decisions now, you can better protect yourself from future economic shocks and set yourself up for long-term financial stability.