An average mortgage holder who has recently renewed, or is about to, is likely absorbing an increase in monthly payments. Media headlines are raising alarm bells that the ongoing wave of mortgage renewals is a looming “shock”. So, it may come as a surprise to learn that aggregate mortgage payments in Canada are actually declining. Let’s unpack how both dynamics can be true at the same time, according to a new report released Wednesday by Maria Solovieva, Economist, with TD Economics.
Maria Solovieva
Here’s some key points, she writes:
- First, the part that’s well understood: many households are facing higher payments. The most popular mortgage term is five years. So as an example, a borrower with a $500,000 mortgage who locked in a 2.5% mortgage rate in June 2020 would now be renewing at a rate closer to 4.0%, with monthly payments rising by about $320. According to a Bank of Canada report published earlier this year, about 60% of outstanding mortgages will renew by the end of 2026, and 40% are expected to renew at higher rates. This is the looming mortgage shock the media is warning about.
- Yet nationally – as odd as it may sound – aggregate mortgage payments are on the decline, driven by lower mortgage rates. We forecasted this in our November 2024 report, and the data has since confirmed the outcome. In the final two quarter of last year, mortgage interest payments declined by an average of 1.7%, providing enough relief to push total mortgage payments into contraction (Chart 1). How can this contradiction seemingly exist? The answer lies in the composition.
- National mortgage payments are calculated using the aggregate dollar volume, not the number of renewing households. This means high-balance mortgages carry more weight in the total. A sizeable share of these larger mortgages are also variable-rate or shorter-term fixed-rate loans. As the Bank of Canada began its easing cycle in mid-2024, borrowers with these mortgages saw early relief, helping drive aggregate payments lower.
- Consider a stylized example. Imagine an economy with just two households. One with the mortgage profile described above where their monthly payment increases by $320. The other with a mortgage that is two times larger, at $1,000,000. This mortgage is taken under a one-year term with a 5.9% rate. Upon renewal today, that monthly mortgage payment is a whopping $1,480 lower! Even though one household is worse off, the national mortgage payment is now lower – because the higher-balance mortgage dominates the total volume.
- We estimate that more than one-third of mortgages renewing between now and 2026 fall into this “early relief” group – characterized as those with variable-rates or short-term fixed mortgages that will be either renewing at lower rates or are benefitting from interest rate cuts. These borrowers tend to carry above-average balances, which magnifies their effect on the aggregate figures.
The full report can be found here.
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Entrepreneur. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 and 2024 as one of the top business journalists in the world by PR News. He was also named by RETHINK to its global list of Top Retail Experts 2024 and 2025.
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