Fixed-rate borrowers face up to 20% payment hikes at renewal, BoC warns

  7/23/2025 |   SHARE
Posted in Mortgages and Real Estate by Vanguard Realty | Back to Main Blog Page

Bank of Canada data shows fixed-rate borrowers face the steepest payment hikes this year and next, but not all mortgage holders are in the same boat.

Mortgage holders with 5-year, fixed-rate terms renewing in 2025 or 2026 are expected to face the sharpest payment increases, according to new Bank of Canada research.

On average, this group could see monthly payments jump by 15% to 20% compared to their December 2024 levels.

These borrowers account for a significant portion of the Canadian mortgage market, with five-year fixed-rate terms making up about 40% of all outstanding mortgages, according to the report.

Most, but not all, will pay more

Overall, the Bank estimates 60% of mortgage holders renewing in 2025 and 2026 will see their payments rise, even after recent interest rate declines.

“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.”

However, that national average masks major differences depending on mortgage type and borrower history.

“Those with variable rates and variable payments could see an average payment decline of around 5%–7%,” the report notes.

Borrowers with variable-rate, fixed-payment mortgages will see a wide range of outcomes at renewal, depending largely on how much principal they’ve repaid since origination or their last renewal.

At the upper end, 10% of these borrowers renewing in 2026 could face payment increases of more than 40%, particularly those who’ve accumulated negative amortization. At the other end, about 25% are expected to see a decrease of at least 7%.

“Some borrowers have increased their monthly payment to make sure it continues covering the interest and principal,” the report said. “These borrowers will face smaller payment increases at renewal than borrowers who are in negative amortization.”

Among those who originated or renewed before March 2022, when the Bank began raising rates, roughly 80% have repaid more than what their contract required, the report found.

On average, they repaid three times the required principal, meaning that only about 5% of that group had a higher principal balance in early 2025 than when they originated or renewed—far lower than the 25% that would have been expected based strictly on contract terms.

A third of all mortgage holders will feel the impact

The Bank estimates that mortgage holders facing higher payments represent about one-third of all mortgage holders in the country. Among them, fixed-rate borrowers make up roughly three-quarters.

At the same time, nearly a quarter of all mortgage holders will see payments decline, with most in this group holding short-term fixed-rate products.

Managing the increase

While the looming renewal shock may sound steep, the Bank believes many borrowers will be able to absorb the change.

“Most borrowers will likely have higher income at renewal and should face interest rates below what they were stress-tested for,” the report said. It also noted that many have options available, including extending amortization by five years, which could eliminate payment increases entirely for about half of those facing higher payments.

For borrowers who are exposed, the median mortgage debt service (MDS) ratio is expected to rise from 15.3% in December 2024 to 18% by the end of 2026, still below the 35% benchmark commonly used by lenders in stress tests

The Bank concluded that while financial stress may increase for some, “we do not expect upcoming mortgage renewals will lead to a severe worsening of financial stress for affected borrowers, holding everything else constant.”

Source: Canadian Mortgage Trends

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