Mortgage Renewal Headwinds Near a ‘Turning Point’ for Pandemic Buyers, Report Says

Why It Matters

Reduced payment pressure will improve consumer cash flow and support spending, easing the broader Canadian economy’s exposure to mortgage‑related risk.

Key Takeaways

• Debt-service ratio fell to 14.6% in Q3 2025.
• Average amortization now 25 years 5 months, 16 months longer.
• Variable/short-term mortgages now 73% of portfolio.
• Bank of Canada key rate steady at 2.25% since Jan.
• Mortgage payments expected 6% higher in 2026, then fall.

Pulse Analysis

The latest TD Bank analysis highlights a turning point for Canadian homeowners who locked in ultra‑low rates during the pandemic. A declining debt‑service ratio—now at 14.6%—reflects stronger disposable incomes and a gradual easing of payment burdens. This metric, a barometer of household financial health, suggests that the worst of the mortgage‑payment shock has passed, allowing borrowers to navigate higher rates without jeopardizing their budgets.

Concurrently, the mortgage market’s composition is shifting. Variable‑rate and short‑term fixed loans now account for roughly 73% of all mortgages, up from a near‑even split in early 2022. Lenders and borrowers alike are extending amortization periods, with the average term now 25 years and five months—about 16 months longer than pre‑pandemic levels. These adjustments, combined with the Bank of Canada’s policy rate holding steady at 2.25%, are dampening the impact of earlier rate hikes and spreading payment obligations over a longer horizon.

Looking ahead, TD projects modest payment growth of about six percent for renewals in 2026, followed by a decline in the latter half of the year as lower‑rate contracts become prevalent. Mortgage interest‑cost inflation has already receded to 1.2% year‑over‑year, far below its 31% peak in August 2023, and is expected to stabilize by late 2026 or early 2027. This trajectory should free up consumer spending power, reducing the risk of a broader credit crunch and supporting economic resilience as the housing market normalizes.