TORONTO – The Bank of Canada is raising concerns about a growing financial challenge facing homeowners, warning that a significant number of borrowers in the Greater Toronto Area could struggle to refinance their mortgages when renewal time arrives in 2027.
In its latest Financial Stability Report, the central bank says Canadian households, businesses, and financial institutions have generally remained resilient despite economic uncertainty. However, it cautions that vulnerabilities are building, particularly among homeowners who purchased properties during the pandemic when interest rates were at historic lows and housing prices were near record highs.
Over the past year, many borrowers have already experienced substantial increases in mortgage payments as they renewed loans originally secured at exceptionally low rates. While most households have managed to absorb the higher costs, the Bank of Canada notes that financial stress is becoming increasingly evident among borrowers carrying large mortgage balances relative to their incomes.
The situation appears most severe in the Greater Toronto Area, where home prices have softened since their pandemic peak while borrowing costs remain considerably higher than they were several years ago. According to the report, approximately nine per cent of Toronto-area borrowers could be unable to refinance their mortgages at renewal under current market conditions. If home prices decline by an additional 10 per cent, that figure could rise to 12 per cent.
Nationally, the central bank estimates that around four per cent of borrowers may face refinancing challenges in 2027, highlighting how the problem is particularly concentrated in the Toronto region.
The report points to homeowners who purchased properties in 2022 and 2023 as being among the most vulnerable. Many of these buyers entered the market at elevated prices and now face a combination of reduced home equity, higher interest rates, and tighter lending requirements. As property values have fallen in some areas, homeowners who planned to refinance or access equity may find that their options have become increasingly limited.
Mortgage arrears have already been rising among highly indebted borrowers. In Toronto, the percentage of high loan-to-income borrowers who were more than 60 days behind on their mortgage payments increased significantly over the past year, reflecting mounting financial pressure on some households.
The final wave of pandemic-era fixed-rate mortgages is expected to come up for renewal over the next year. These mortgages represent roughly 12 per cent of all outstanding mortgages in Canada. Borrowers renewing these loans can expect their monthly payments to increase by approximately 15 per cent compared to what they were paying previously.
Despite these concerns, mortgage experts emphasize that many homeowners are unlikely to lose their homes solely because they cannot qualify for refinancing. In Canada, borrowers who remain in good standing with their lender can typically renew their mortgage with the same institution without undergoing a new qualification process.
Industry experts note that borrowers who continue making their payments on time, maintain property insurance, and keep property taxes current are generally offered renewal options by their existing lenders. However, homeowners who cannot refinance may lose access to opportunities such as switching lenders, obtaining lower interest rates elsewhere, or borrowing against home equity to consolidate debt or cover unexpected expenses.
The challenge is especially difficult for homeowners facing employment uncertainty or declining incomes. With unemployment concerns growing in some sectors and living costs remaining elevated, financial flexibility has become increasingly important. For those already carrying significant debt, even a modest increase in monthly housing costs can create considerable strain.
Mortgage professionals are encouraging homeowners to act early if they anticipate difficulties. Open communication with lenders, exploring available payment options, and seeking professional advice from mortgage brokers can often help borrowers navigate challenging circumstances before problems escalate.
While the Bank of Canada stresses that the majority of mortgage holders are expected to successfully manage upcoming renewals, the report serves as a warning that thousands of homeowners, particularly in Toronto, may face difficult financial decisions in the years ahead. As housing affordability challenges persist and economic uncertainty continues, the ability of households to adapt to higher borrowing costs will remain a key factor in the stability of Canada’s housing market and broader economy.