With almost two million mortgages due to renew over the next 12 months, most at higher interest rates, there’s sure to be a drag on consumer spending — but BMO Capital Markets says that the economy, and the financial system, should be able to weather that storm.
In a new report, BMO economists highlight the looming surge of mortgage renewals, which are expected to peak in June of next year. In particular, many of the mortgages that are slated to renew in the first six months of 2026 will be coming off the historically low rates of early 2021, when both variable and fixed rates were under 2%.
“Indeed, the bulk of activity that year was in variable-rate product down at around 1.5%, which, on five-year terms, leaves the cheapest-of-cheap mortgages renewing in the first half of 2026,” it said.
Those households are facing an imminent rate shock — although the damage won’t be as bad as it could have been.
“While mortgage rates today are certainly higher than they were at origination, the Bank of Canada’s easing cycle has proven very timely,” the report said.
Indeed, given that the Bank of Canada has already cut rates by 225 basis points, and more easing is expected in the months ahead, most households will be looking at rate increases of 200 to 250 bps from current levels, it suggested.
While this represents a meaningful increase, the report noted that it’s within the range that borrowers were stress tested at when they first took out their mortgages — and, most will have enjoyed some income growth since then too.
“This buffer will serve to limit delinquency and forced selling which would otherwise exacerbate the real estate correction and further undercut the economy,” it said.
Additionally, household financial assets have grown strongly over the past five years too, it noted.
“Not only does this provide a cushion for future mortgage payments, but also offers flexibility to reduce outstanding balances at renewal,” it said.
Ultimately, the report said that, “While some borrowers will face a meaningful payment shock, the impact will be mitigated by sound lending practices, income growth, some proactive adjustments and robust liquid assets.”
Overall, the wave of mortgage renewals is expected to, “pose a moderate headwind on discretionary household spending … but it won’t spill over into a wave of delinquencies and broader economic damage,” the report concluded.