Canada's mortgage arrears creep back to record pandemic levels

  4/1/2025 |   SHARE
Posted in Financial Health by Sandra Karas| Back to Main Blog Page

Mortgage arrears in Canada are rising at the fastest pace in years, signalling ongoing financial stress even as borrowing costs begin to ease. 

The national mortgage arrears rate hit 0.22% in January, up 0.04 percentage points from the previous reading and marking the highest level since March 2021, according to the latest data from the Canadian Bankers Association (CBA). That represents a 57% increase from the record low set in mid-2022. 

Although the overall rate remains below pre-pandemic levels, it’s now within spitting distance and heading the wrong way, according to the report. 

CBA’s data, gathered from a select group of member institutions, tracks mortgages that are at least 90 days past due, the point at which lenders typically begin to treat a loan as being at significant risk of default. 

While mortgage arrears are often seen as a sign of household weakness, the report suggests they are more accurately viewed as a liquidity issue. During booming housing markets, homeowners behind on payments can usually sell quickly to avoid default. A rising arrears rate, however, implies the market is cooling and homes aren’t moving fast enough to provide borrowers with an exit. 

The recent uptick coincides with a slowdown in both new and resale home activity. Rising interest rates and global economic uncertainty, including the ongoing trade war, have further squeezed liquidity, making it harder for borrowers to manage payments or sell in time to avoid default. 

What’s particularly concerning, the report noted, is that arrears started to rise even before the trade war intensified, despite policymakers directing lenders to proactively work with struggling borrowers to prevent defaults. 

Lower rates offer some relief — but not enough

While arrears are on the rise, there’s also been a notable improvement in housing affordability, thanks in large part to falling interest rates. 

The decline in fixed mortgage rates, which began even before the Bank of Canada’s first policy rate cut in June, helped reverse three years of affordability deterioration. According to RBC, more than 80% of the 7.7-percentage-point improvement in its national affordability index since Q4 2023 is due to lower borrowing costs, with household income growth accounting for the rest. 

By the end of 2023, Canadian homeowners were allocating 55.9% of their income to cover mortgage payments, property taxes, and utilities, down from a record 63.8% a year earlier. It marked the fourth consecutive quarterly improvement. 

Still, affordability remains strained in many major markets. 

“Cheaper borrowing costs moved the needle lower in every part of Canada—generating larger savings in the pricier markets (Toronto, Vancouver and Victoria),” RBC Economics stated in a recent commentary. 

RBC noted that the recent shift in affordability came just in time. After surging home prices between 2020 and early 2022 and then sharp interest rate hikes to combat inflation, housing costs reached crisis levels in late 2023. 

Source: Canadian Mortgage Professional

Mortgage Consumers, Mortgage Debt, Mortgage Delinquency, Mortgage Trends