In its latest Annual Risk Outlook, the Office of the Superintendent of Financial Institutions (OSFI) warns that more than one-third of Canada’s mortgages, roughly 36%, are set to renew by the end of 2026.
Despite recent interest rate reductions of 200 basis points since June 2024, many borrowers will still face significantly higher payments upon renewal compared to their original rates.
A recent report from Equifax Canada found that 6% of borrowers who renewed a mortgage in 2024 saw their monthly payment increase by $500 or more. In Ontario and British Columbia, this figure was even higher, with 10% of renewals experiencing such increases.
OSFI specifically points to fixed-rate mortgage holders and variable-rate mortgage holders with fixed payments as particularly vulnerable groups due to their initial low borrowing rates.
Borrowers with fixed-payment variable rates, in particular, are expected to face the sharpest payment increases upon renewal. This risk isn’t new—OSFI has repeatedly raised concerns about these mortgages in the past, highlighting potential problems related to negative amortization and payment shock when rates rise after extended periods of low interest.
While falling interest are helping to soften the payment shock fixed-payment variable rate borrowers will face, OSFI says it could also lead to renewed interest in these mortgage products.
Mortgage delinquencies, while still below pre-pandemic levels nationally, are projected to rise as borrowers face these payment hikes. The Greater Toronto Area and Greater Vancouver Area are anticipated to feel this stress more acutely due to higher regional mortgage debt and property valuations.
Equifax data also reveals that mortgage defaults continued to climb in late 2024, with balances past due rising 43% year-over-year. Additionally, the rate of mortgages over
Further complicating matters, OSFI also notes ongoing pressures within Canada’s condominium market. A backlog of completed condo construction has resulted in oversupply amid declining investor and homeowner demand, adding economic uncertainty to the housing sector.
“Changes to the economic environment, such as increases in unemployment rates and uncertainty driven by potential U.S. trade protectionism, could lead to more vulnerable segments of the market being unable to service their mortgage debts,” OSFI noted.
OSFI steps up oversight of mortgage lending risks
To address these growing risks, OSFI said it has ramped up its oversight of mortgage lending.
“We continuously monitor the risk profiles of institutions’ residential mortgage lending activities through advanced analytics and a robust examination framework to ensure mortgage lenders adhere to prudent underwriting standards [and] portfolio and account management practices…” the regulator said.
OSFI has also reiterated expectations for lenders to provide proactive support to borrowers facing financial hardship.
As part of its risk mitigation strategy, OSFI is enforcing loan-to-income (LTI) limits on the proportion of a lender’s uninsured mortgage portfolio that can consist of loans exceeding 4.5 times the borrower’s income.
“This effort has improved OSFI’s supervisory acuity into risk concentrations in the mortgage lending space, as well as our ability to mitigate those risk concentrations,” OSFI said, adding that the measure aims to prevent “excessive household leverage.”
OSFI has also adjusted its approach to mortgage renewals, removing the requirement for uninsured borrowers to pass the Minimum Qualifying Rate (stress test) when switching lenders for a straight renewal.
The change is intended to give borrowers more flexibility in finding competitive renewal options without facing additional qualification hurdles, particularly amid rising mortgage payments.
Other risks highlighted by OSFI
Outside of real estate, OSFI also identified integrity and security as the top overall risks for the Canadian financial system, driven by heightened geopolitical tensions and cybersecurity threats.
Additional risks include wholesale credit risks due to ongoing economic uncertainties and funding and liquidity challenges stemming from potential volatility in financial markets.
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Last modified: March 14, 2025
