Declining property values are stranding borrowers with their current lenders
Falling appraisal values across the Greater Toronto Area (GTA) are preventing a significant share of homeowners from refinancing, leaving them with fewer options at renewal and little to no ability to shop for a better rate.
The Bank of Canada’s Financial Stability Report, released last week, highlighted that worrying trend, which has arrived amid a protracted cooldown in the Toronto housing market that’s seen prices and sales activity plunge over the past two years.
And mortgage brokers on the ground have been noticing that challenge during 2026, with the slowdown chipping away at homeowners’ equity and narrowing their options when they need a refinance.
“It’s nothing to do with not being able to qualify based on income or credit rating – that’s all fine,” Victor Tran (pictured top), a mortgage and real estate expert with Rates.ca, told Canadian Mortgage Professional. “But values are coming in a little bit lower than what we need to get a refinance done.”
Mortgage refinances are generally capped at 80% of a property’s appraisal value, meaning the total of all loans secured by the property – including the new mortgage and any second mortgage or home equity line of credit (HELOC – cannot exceed 80% of what the home is currently worth.
When that threshold isn’t met, clients are unable to borrow enough to pay out their existing mortgage, access equity for debt consolidation, or transfer to a new lender for a potentially better rate. That means they’re usually left with no option but to renew with their current lender on whatever terms are offered.
“They’re pretty much at the mercy of the current lenders,” Tran said. “They don’t have as much bargaining power.”
Purchase activity has posted a mild recovery in Toronto over the past three months, but sales are continuing to drop – especially in the beleaguered condo sector, whose regression has shown no sign of slowing.
Fixed rates dominate as economic uncertainty takes hold
The renewal picture is challenging for many borrowers across Canada, although it’s less severe than some feared when the Bank of Canada’s trendsetting interest rate was at a 22-year peak in 2023 and 2024.
The central bank has since clipped its policy rate, bringing variable mortgage rates lower, while five-year Government of Canada bond yields – which heavily influence fixed rates – have also trended downwards since 2023.
Despite a flurry of rate cuts in 2024 and 2025, the Bank of Canada has opted against further moves this year – and against a turbulent economic backdrop, Tran said borrowers are overwhelmingly gravitating towards fixed rates, with approximately eight in 10 clients choosing the peace of mind offered by those products.
“Obviously it’s for stability and certainty,” he said, “especially since we’re still in uncertain times with the ongoing trade war and conflict in the Middle East. Inflation is still an issue, and unemployment is a bit of an issue as well.”
Central bank governor Tiff Macklem was frank about the economic challenges facing Canada in his remarks accompanying its decision on Wednesday, describing the economy as “weak” despite a better-than-expected jobs report in May.
Renewal wave eases, but payment shock remains a concern
While the appraisal squeeze is cutting off options for some borrowers, those who can renew are focused on one overriding priority: keeping payments manageable.
Canada Mortgage and Housing Corporation (CMHC) says the worst of the mortgage renewal wave could be over, although it has acknowledge the real struggles of many Canadians as higher payments and rates loom.
The good news is that there are still ways for Canadians to mitigate those challenges, Tran said. “Most people are just looking to minimize the payment shock when they’re coming up for renewal: re-amortizing for a longer period to drop those payments and going for fixed rates for that stability.”
But clients who cannot refinance due to valuation gaps are facing a different conversation because they can’t tap into a full refinance when rates or payments rise. That dynamic, according to Tran, is unlikely to resolve until property values in the GTA stabilize.
For the summer, renewals and refinances look likely to continue anchoring deal flow as purchase transactions remain muted headed into the slower seasonal months.
“Historically, summer months are a little bit slower in terms of real estate activity,” Tran said, “but renewals and refinances are still the big focus for all mortgage professionals.”
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