The Canadian Mortgage Cliff: Navigating the Great Renewal Wave of Q3 & Q4 2025

The final half of 2025 marked a pivotal, yet contradictory, period for Canada's financial markets. While Bank of Canada (BoC) rate cuts offered a glimmer of hope to squeezed households, the looming "Mortgage Renewal Wave"—the largest in Canadian history—continued to test the resilience of the nation's homeowners and the broader economy.

This blog post breaks down the key trends, challenges, and forecasts defining the Canadian mortgage industry and financial markets in Q3 and Q4 2025.

📉 The Rate Relief Trade-Off: BoC Easing

The major story of Q3 and Q4 2025 was the BoC's continued move into an easing cycle. After a series of cuts in 2024, the Overnight Target Rate settled around 2.25% by year-end 2025.

• Fixed vs. Variable: This easing led to a dynamic shift in borrower preference. While variable rates saw their effective payments drop (offering relief to those with variable-rate, variable-payment mortgages), fixed rates with terms of 3 to 5 years surged in popularity. Borrowers—burnt by the rate roller coaster—increasingly sought the certainty of 5-year fixed rates in the expected 3.8% – 4.2% range, locking in for stability rather than chasing the bottom of the rate cycle.

• The Global Headwind: This domestic relief, however, was framed by significant trade policy uncertainty (particularly with the U.S.), which depressed business investment and kept overall economic growth sluggish. This external pressure was a key factor allowing the BoC to continue its cuts, as underlying inflation eased toward the 2% target.

🌊 The Tsunami of Renewal: Financial Stress Hits Home

The most significant structural challenge of the period was the massive mortgage renewal wave peaking in 2025 and 2026. This largely affects borrowers who locked in historically low 5-year fixed rates (around 1.79% to 2.50%) during the 2020-2021 pandemic boom.

• Payment Shock: An estimated 60% of all Canadian mortgages are set to renew over this two-year period, with the majority facing a substantial jump in monthly payments. For those renewing from a 5-year fixed term, the average payment increase is estimated to be between 15% and 20%.

• Arrears and Delinquency: While the national mortgage delinquency rate remains historically low, the financial strain is becoming apparent in specific areas. The rate of mortgage arrears in Ontario, for example, saw a notable year-over-year increase, signaling regional pressure points where high house prices combine with job market uncertainty.

• The Mitigation Strategy: To cope, a significant number of households are exploring options like extending their amortization period (often back to 30 years or more) to lower the monthly payment. Others are cutting discretionary spending or considering more drastic measures like downsizing. Crucially, research suggests that most renewing borrowers are still qualifying at rates below the original stress-test level they were initially approved at, offering a safety net against mass default, provided the labour market remains stable.

🏗️ Housing Market: A Cautious Recovery

The housing market in Q3 and Q4 2025 presented a mixed picture:

Market Segment	Q3/Q4 2025 Trend	Drivers
Sales Activity	Moderate, uneven rebound	Return of pent-up demand due to rate cuts. Stronger-than-expected growth in B.C. and Ontario.
Home Prices	Nationally stable, regionally declining	Overall average prices buoyed by sales in expensive markets, but continued price pressure and declines are noted in high-cost areas due to high inventory.
New Construction	Significant slowdown	Developer uncertainty and high financing/construction costs led to project cancellations, particularly for condominiums. Construction efforts remain focused on purpose-built rental units, often with government support.

The core issue remains affordability. Despite the decline in the Bank of Canada's policy rate, high housing prices and a persistent shortage of new, affordable construction mean that the housing market recovery is expected to be a gradual, multi-year process.

💡 What This Means for the Financial Future

The end of 2025 marks the transition from a period of rate shock to a period of payment shock. The Canadian financial system, particularly the big chartered banks, appear robust enough to handle the renewal wave without a systemic crisis, largely due to conservative lending rules (the stress test).

However, the mortgage renewal wave is not a systemic risk; it is a household financial risk. The next year will be defined by how individual households adapt to materially higher carrying costs, which will impact everything from consumer spending to the overall pace of economic growth.

The Consensus Outlook for 2026:

• The BoC is expected to pause its rate cuts (holding at 2.25%) for most of 2026 as the economic data plays out.

• Housing sales are forecast to rebound more robustly in 2026 (a 7.7% increase expected), with modest price growth returning (around 3.2% nationally) as the market absorbs the renewed debt and economic confidence improves.

This period requires diligence and proactive planning from Canadian homeowners.