National risk remains contained, but the national housing agency doesn’t expect Ontario delinquencies to moderate until the middle of next year
Mortgage arrears in Ontario are expected to keep rising until the middle of next year, according to Canada Mortgage and Housing Corporation (CMHC), with British Columbia and Atlantic Canada set to see delinquencies climb at a more modest pace.
The national housing agency’s latest Residential Mortgage Industry Report, released this morning, underlined that overall mortgage stress is still contained but is increasing “unevenly” on a regional basis, driven mainly by continued pain in Ontario and BC.
Among lenders, mortgage investment entities (MIEs), also often known as mortgage investment corporations (MICs), are bearing the brunt of arrears stress because they are more exposed to higher-risk borrowers than mainstream lenders.
But those lenders still represent a small part of the market – about 1.8% of total outstanding mortgage balances in 2026’s first quarter – meaning wider risk to the mortgage sector has been limited.
In Ontario, delinquency rates are nearing levels not seen since 2008, CMHC’s report said, although Alberta is showing continued improvement “supported by stronger regional economic conditions and higher energy prices.”
Renewal wave worsens affordability headaches
Unsurprisingly, mortgage strain is most apparent among Canadians renewing their mortgages at much higher rates than their original contract. Still, CMHC sees no chance of that triggering a meltdown.
“Delinquency rates remain below the historical peaks seen over the past 30 years,” its report said. “This suggests borrower stress is increasing but remains contained relative to past downturns.”
A sluggish labour market and rising unemployment have pushed arrears higher, while CMHC also highlighted eroding home equity because of falling home prices as a factor that’s limiting borrowers’ ability to sell or refinance their homes.
Ontario’s exposure to US tariffs is another reason the province is faring worse than others amid the ongoing mortgage renewal wave.
In a riskier lending environment, more flexible mortgage terms are becoming increasingly popular, CMHC said.
“As rates have eased from their recent peak in June 2024, borrowers have shown renewed interest in variable-rate mortgages and fixed-rate mortgages with terms between three and five years,” its report said.
“Lower rates on these products compared with five-year fixed mortgages may be contributing to this shift, as they can reduce borrowers’ mortgage payments.”
Rocky economy set to keep the pressure on Ontario
The ongoing trade war with the US, a lull in national economic growth, and a weaker housing market are expected to put more pressure on borrowers looking ahead, especially in Ontario and specifically, Toronto.
“The economy will remain exposed to trade tensions in key manufacturing sectors such as the automotive industry in and around Toronto, affecting employment,” CMHC said. “Meanwhile, weak housing market conditions will persist and continue to make it harder for stressed borrowers to exit through a sale.
“These conditions position Toronto for persistent, above-average delinquency growth through late 2026 and into 2027.”
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