Mortgage renewals wave set to drive delinquency rates up in 2025: CMHC
The Canada Mortgage and Housing Corp. (CMHC) said Monday that the mortgage delinquency rate — the proportion of Canadians who have missed payments on their mortgage — continued to rise in the second quarter of 2024.
A report released on Monday warns that Canadian homeowners are at risk of facing challenges from an impending wave of mortgage renewals, despite the Bank of Canada lowering its benchmark interest rate.
The Canada Mortgage and Housing Corporation (CMHC) reported that the mortgage delinquency rate—the percentage of Canadians who have missed mortgage payments—continued to rise in the second quarter of 2024. By the end of July, the delinquency rate increased slightly to approximately 0.192 percent, up from 0.17 percent at the end of 2023 and significantly higher than the record low of 0.14 percent recorded in 2022. However, CMHC pointed out that this rate remains “well below” the 0.28 percent observed before the pandemic in 2019.
While Canadians are generally keeping up with their mortgage payments, CMHC has identified rising stress in other credit products, which could potentially affect home loans. The delinquency rate for auto loans saw a “significant increase” in the second quarter, rising to 2.42 percent from 2.11 percent in the prior quarter. Additionally, delinquency rates for credit cards and lines of credit also climbed in the first half of 2024.
The report stated, "Credit card and auto delinquencies can be leading indicators of mortgage delinquency rates, so these patterns suggest that mortgage delinquency will continue to increase into 2025."
Although the Bank of Canada has initiated a cycle of interest rate reductions, lowering its policy rate by 1.25 percentage points since June, CMHC cautioned that over one million Canadian homeowners will renew their mortgages in the coming year, facing risks due to higher rates. The majority of fixed-rate mortgages set to renew in 2025 were secured when the central bank's policy rate was at or below one percent.
With the current Bank of Canada policy rate at 3.75 percent, at least 1.05 million mortgage consumers will have to renew their loans “at significantly higher interest rates” next year, according to CMHC. Many economists anticipate that the central bank will continue to lower its key rate through 2025.
