How will mortgage payments change at renewal? An updated analysis

Introduction

About 60% of all outstanding mortgages in Canada are expected to renew in 2025 or 2026. In this note, we provide an updated assessment of how mortgage payments may change for these households at renewal. To do so, we use an enhanced dataset on the stock of real estate secured lending.

We make two assumptions in our assessment:

• Interest rates evolve in line with financial market expectations.
• At renewal, all borrowers renew into the same type of mortgage they already had for the same term.

Based on those assumptions, we find the following:

• About 60% of mortgage holders renewing in 2025 and 2026 are expected to see a payment increase. Most of these borrowers hold a five-year, fixed-rate mortgage.
• Compared with December 2024 payments, the average monthly mortgage payment could be 10% higher for those renewing in 2025 and 6% higher for those renewing in 2026.
• These overall numbers, however, hide large differences between borrowers and between types of products. For instance, mortgage holders with a five-year, fixed rate contract renewing in 2025 or 2026 could face an average payment increase of around 15%–20% compared with their payment in December 2024. Those with variable rates and variable payments could see an average payment decline of around 5%–7%.

The dataset

The Office of the Superintendent of Financial Institutions, Canada’s federal banking regulator, collects monthly data on the existing stock of mortgages held by federally regulated financial institutions. Previously, Bank staff used an earlier version of this dataset, called RESL1, to simulate changes in mortgage payments.

RESL1 captured mortgages only at origination and renewal.1 The enhanced dataset, called RESL2, provides a snapshot of every outstanding residential mortgage each month. Since May 2023, the data in RESL2 include the latest revisions and improved definitions and coverage.2

Relative to RESL1, the enhanced dataset gives a more updated reading of the stock of mortgages at the start of the simulation period. This is because RESL2 provides up-to-date outstanding balances that account for prepayments since last renewal or origination.

Methodology

Our work uses the methodology described in teNyenhuis and Su (2023) to assess changes in mortgage payments. The authors assumed each mortgage holder renewed into the same mortgage product, meaning a borrower with a variable-rate mortgage would renew with a variable-rate mortgage that had the same term length and remaining amortization.

We construct the interest rate path by combining historical mortgage rates and market expectations for both the policy interest rate and rates for government bonds (Chart 1). The spread on each mortgage is assumed to stay constant over time.3 

For the simulation period, we assume borrowers make scheduled payments only. In other words, they do not make extra lump-sum payments, nor do they increase their regular payments to reduce their balance faster than scheduled. However, if they accelerated their payment schedule since last renewal or origination, the simulation would start with the accelerated schedule—which was not possible in the previous version of the simulation.

The results

Even with recent declines in interest rates, about 60% of mortgage holders renewing in 2025 and 2026 will likely see their payments increase from December 2024 levels. Around 75% of those facing payment increases hold a five-year, fixed-rate mortgage (Chart 2, panel b).

Mortgage holders facing an increase represent about one-third of all mortgage holders in Canada (Chart 2, panel a). On the flip side, close to one-quarter of all mortgage holders are expected to see a decrease in payments by the end of 2026. Most of these mortgage holders have a short-term, fixed-rate mortgage.

b. Distribution of outstanding mortgages that will see an increase or decrease by the end of 2026

Sources: Regulatory filings of Canadian banks and Bank of Canada calculations

Five-year, fixed-rate mortgages make up around 40% of all mortgages in Canada. Holders of these mortgages renewing in 2026 are likely to see an average increase in payments of 20% (Chart 3). This group is expected to face the largest average payment increases among mortgage holders renewing in 2026.

At the other end, payments for variable-rate, variable-payment mortgages have passed their peak. Based on market expectations for interest rates, these payments should continue to decline.

For variable-rate, fixed-payment mortgages, the range of payment changes is wide:

• At the top of the range, 10% of borrowers renewing in 2026 will see an increase of more than 40%.
• At the bottom of the range, a quarter of borrowers renewing in 2026 will see a decrease of at least 7%.

This wide range mainly reflects the principal payments some borrowers have made since origination or the previous renewal. Some borrowers have increased their monthly payment to make sure it continues covering the interest and principal.4 These borrowers will face smaller payment increases at renewal than borrowers who are in negative amortization, where the monthly payment does not fully cover the interest, which is then added to the principal.

Borrowers with variable-rate, fixed-payment mortgages who originated or last renewed before March 2022—when the Bank began raising rates—have, on average, repaid three times the required amount of principal. This is because about 80% of these borrowers have repaid more than what their contract required. As a result, only about 5% of all borrowers who originated or last renewed a variable-rate, fixed-payment mortgage before 2022 had a higher principal balance in February 2025 than at origination or the previous renewal. This is a much smaller share than the 25% of borrowers we would have expected to be in this position based on the contract information (Chart 4).

Borrowers facing a payment increase will see a larger change in their mortgage debt service (MDS) ratio than those with payment decreases.5

• For mortgage holders facing a payment decrease, the median MDS ratio will drop 1.1 percentage points from 19.7% at the end of 2024 to 18.6% by the end of 2026.
• For borrowers facing a payment increase, the median MDS ratio will rise by 2.7 percentage points from 15.3% in December 2024 to 18.0% by the end of 2026.

These expected changes in the MDS ratio assume that borrowers’ incomes have not changed since origination or the previous renewal.

However, many mortgage holders facing payment increases in 2025 and 2026 will likely have seen their incomes rise since they originated or renewed their mortgage. These increases in income should help borrowers manage higher payments. Most borrowers also have other options for managing higher payments:

• Some can extend the amortization on their mortgage. This would be available to many borrowers with a five-year term. The results of the simulation suggest that about half of the borrowers facing higher payments could eliminate increases by extending amortization by five years.
• Some can extract equity from their home as a short-term solution. Many households have repaid a significant amount of the mortgage principal over the years and thus could access more borrowing room from home equity lines of credit if they require additional cash to make payments.

Additionally, most borrowers are expected to face interest rates below what they were stress-tested for, based on the path markets expect for rates. These borrowers qualified for their mortgages after being stress-tested at an interest rate that was at least 200 basis points higher than their contract rate.

Conclusion

We use an enhanced dataset of outstanding mortgages, known as RESL2, to provide an updated assessment of potential changes to mortgage payments. RESL2 allows us to better capture the effect of prepayments on future increases in mortgage payments.

Overall, we do not expect upcoming mortgage renewals will lead to a severe worsening of financial stress for affected borrowers, holding everything else constant.6 Indeed, most borrowers will likely have higher income at renewal and should face interest rates below what they were stress-tested for. That said, some borrowers with higher payments at renewal will face challenges. Many of them will need to change their spending to manage higher mortgage payments. And some may struggle to meet their other financial obligations.

References

Al Aboud, O., S. Sheikh, A. Su and Y. Xu. 2025. “Using New Loan Data to Better Understand Mortgage Holders.” Bank of Canada Staff Analytical Note No. 2025-1.

Murchison, S. and M. teNyenhuis. 2022. “Variable-rate Mortgages with Fixed Payments: Examining Trigger Rates.” Bank of Canada Staff Analytical Note No. 2022-19.

teNyenhuis, M. and A. Su. 2023. “The Impact of Higher Interest Rates on Mortgage Payments.” Bank of Canada Staff Analytical Note No. 2023-19.

Endnotes