Mortgage Renewal Cliff Looms as Rates Rise

The 'mortgage renewal cliff' may be making a comeback as mortgage rates rise. In 2023, borrowers who renewed their mortgages at higher rates faced significant increases in payments. However, policymakers and economists predicted that this would lead to economic downturns and increased mortgage arrears.

But the crisis was averted when borrowers absorbed the shock using accumulated pandemic savings, voluntary prepayments, and extended amortizations. Rate cuts and wage growth also helped mitigate the effects.

Now, with Canada's five-year government yield rebounding by 63% since April 2025, mortgage rates are expected to rise again. If the yield breaks above four percent, it could test its post-2008 financial crisis high of 4.42%. This would likely lead to multiple Bank of Canada rate hikes.

The consequences would be significant: mortgage payments on a $668,351 home (today's average) would jump about $232 a month, and qualifying for that average home would require at least another $8,000 to $9,000 in income. Buyer confidence would take a beating, listings would build, sales would weaken further, and home prices could tumble.