Recent headlines warn that Canadian mortgage arrears have climbed to their highest level in nearly a decade, driven by a wave of higher-cost renewals, elevated inflation, and rising unemployment. While the headlines are attention-grabbing, the underlying story is less dramatic.
Mortgage arrears, defined as payments overdue by 90 days or more, have risen nationally from a pandemic-era low of 0.14 per cent of outstanding mortgages to 0.29 per cent today. A Desjardins Economic Studies report, “The Outlook for Mortgage Arrears in a Higher-Rate World” (July 9, 2026), suggests the increase reflects a return to more normal borrowing conditions rather than a sign of widespread financial distress among homeowners.
The primary driver has been higher mortgage renewal rates, as borrowers who locked in ultra-low pandemic-era rates are now renewing at materially higher costs. This pressure is most pronounced among recent homebuyers, particularly in Ontario and British Columbia, who took on larger mortgage balances relative to their incomes amid elevated home prices when they purchased. Ontario has experienced the sharpest deterioration, moving from the lowest provincial arrears rate to above the national average. Investors are also under strain, as softening rental demand and declining asking rents, partly linked to shifting immigration policy, have reduced rental income relative to carrying costs.
The report examines arrears within a broader macroeconomic context, noting that they have historically tracked unemployment closely. At the same time, home price appreciation and inflation have tended to reduce arrears by building equity cushions and eroding real debt burdens, respectively. Importantly, the author emphasizes that arrears represent an endpoint of financial stress, and that entering arrears rarely leads to a forced sale. Most cases are resolved through repayment plans, capitalization of missed payments, amortization extensions, or voluntary sales.
Looking ahead, Desjardins expects arrears growth to moderate and plateau before gradually declining through 2027 and 2028. This outlook rests on several factors, including the renewal cycle moving past its peak, stable labour markets, moderating inflation, modest home price gains, and early signs that household credit stress, such as credit card utilization and missed payments on other credit products, has peaked.
The report acknowledges downside risks, including a resurgence in inflation that could push interest rates higher and weaker economic growth tied to trade uncertainty, which could lead to higher unemployment. Overall, the outlook is cautiously constructive, with current arrears trends viewed as manageable rather than a precursor to widespread mortgage distress.
Source: Desjardins Economic Studies, Economic Viewpoint, July 9, 2026
Independent Opinion
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