Key Takeaways

• Payment Shock is Real: A significant majority (estimated at 60%) of Canadian mortgage holders renewing in 2025 and 2026 are projected to face higher monthly payments, particularly those coming off low, five-year fixed rates.
• The 2026 Rate Outlook: While the Bank of Canada (BoC) has likely finished or is nearing the end of its rate-cutting cycle, the “new normal” for rates is projected to be higher than the 2020-2021 lows. Most major banks forecast the BoC policy rate to settle between 2.00% and 2.75% through 2026. This would put mortgages rates around the 3.50% – 4.00% range (depending on rate and term options).
• Action is Key: The most important step for homeowners facing renewal is to act early—review your options, pre-qualify for a rate hold (usually up to 120 days), and explore amortization adjustments.

Table of Contents

1. The New Reality of Mortgage Affordability
2. The Coming Renewal Wave: What to Expect
3. Canadian Interest Rate Predictions for 2026
4. Proactive Strategies for Homeowners
5. Snippet From our Latest Podcast Discussion
6. Frequently Asked Questions (FAQs)

          1. The New Reality of Mortgage Affordability

For Canadian households, the era of ultra-low, 2% mortgages is firmly in the past. Today, “affordability” is defined by two key factors: the stress test and the high cost of carrying debt.

The Stress Test: Still the Gatekeeper

Even as market rates fluctuate, the Mortgage Stress Test remains the primary barrier to entry for new buyers and a factor in re-qualifying for a refinanced mortgage. Federally regulated lenders must qualify borrowers at the higher of:

1. 5.25%
2. Your contract rate plus 2%

This stress test ensures that, on paper, you can handle a higher future rate, which offers a critical buffer in today’s unpredictable market.

The Debt Service Ratio Challenge

High rates have driven up the Debt Service Ratio (DSR), which measures the percentage of household income used to cover debt payments. As monthly mortgage costs rise, a greater share of income is consumed by debt, squeezing the budget for essentials and savings.

The crucial advice for new buyers is simple: do not max out your borrowing capacity. Aim for a payment well below what the stress test qualifies you for.

           2. The Coming Renewal Wave: What to Expect

The most pressing issue in the Canadian market is the massive volume of mortgages originated during the low-rate pandemic years (2020-2022) that are set to renew over 2025 and 2026.

The Bank of Canada estimates that approximately 60% of all outstanding mortgages will renew in this period. The impact, often called “Payment Shock,” is not uniform.

Payment Shock by Mortgage Type

A more visual representation of this would be:

The VRFP Amortization Trap

Variable-Rate, Fixed-Payment holders often face the largest shock because their fixed payments were not high enough to cover the surging interest during the rate-hike cycle. This led to negative amortization (the balance owed grew). At renewal, these borrowers must reset their payments to cover the full principal and interest over the remaining term, resulting in steep jumps.

          3. Canadian Interest Rate Predictions for 2026

The trajectory of the Bank of Canada (BoC) Overnight Rate dictates the direction of the Prime Rate (which controls variable mortgages) and the 5-year Government of Canada bond yield (which influences fixed rates).

As of late 2025, the BoC has made several cuts, easing the pressure from the 2023 peak. However, most economists are coalescing around a new range for 2026, indicating that the low rates of the 2010s are unlikely to return.

Major Bank Rate Forecasts (End of 2026)

A more visual representation of this would be:

Key Prediction: Expect fixed mortgage rates to settle in the 3.8% – 4.5% range and variable rates in the 3.5% – 4.2% range through 2026, barring any major global economic disruption.

          4. Proactive Strategies for Homeowners

Don’t wait for your renewal notice to arrive! Your mortgage is a financial tool that requires proactive management.

For Those Facing Renewal Soon (2025-2026)

• Get a Rate Hold (120 Days): Lock in a new rate with a new lender as early as four months before your renewal date. This protects you if rates rise but allows you to take a lower rate if they fall before closing.
• Negotiate Hard: Your current lender will send you a renewal offer, but it is rarely their best rate. Use a broker use their knowledge of rates/lenders to force your existing lender to improve their offer, or refinance if your existing lender won’t budge.
• Adjust Amortization: If the payment shock is too great, extending your amortization period (e.g., from 25 to 30 years) can significantly lower your monthly payment. Be aware that this increases the total interest paid over the life of the loan. Also note that in come cased, lender can allow amortization periods up to 35-years.

For Improving Affordability Now

• Increase Payment Frequency: Switching from monthly to accelerated bi-weekly payments effectively adds one extra monthly payment per year. This small adjustment can cut years off your mortgage and save thousands in interest.
• Use Pre-payment Privileges: Apply any annual bonus, tax refund, or lump sum savings directly to the principal using your pre-payment privileges. This is the most efficient way to reduce the amount of interest you pay.
• Consolidate High-Interest Debt: If you have credit card or other high-interest debt, consider refinancing to consolidate it into your mortgage. The lower mortgage interest rate can drastically reduce your overall monthly payments.

          5. Snippet From our Latest Podcast Discussion