As we prepare to ring in the New Year, homeowners across Canada are gearing up for a significant financial shift. A staggering 1.2 million mortgage holders will soon find themselves facing the renewal of their home loans, and the implications could be major for many.

A recent report from the Canada Mortgage and Housing Corporation (CMHC) reveals that a whopping 85% of these mortgages were signed when the Bank of Canada (BoC) interest rate was at or below the historical low of one per cent. This economic backdrop means that a substantial number—over 1 million—of Canadian homeowners will be renewing their mortgages at a time when interest rates are projected to be significantly higher. This situation is raising flags about potential impacts on the Canadian economy.

Throughout 2024, the BoC has reduced its key interest rate four times, responding to diminishing inflation that has managed to stay within the one to three percent target. However, after peaking at an alarming 8.1% in June 2022, the current overnight rate now rests at 3.75%, down from five percent, which had persisted for nearly a year.

Interestingly, while this lower rate may be advantageous for first-time homebuyers entering the market today, it starkly contrasts with the ultra-low rates of 0.25% that prevailed during the pandemic.

The report also indicates a concerning uptick in mortgage delinquency rates—defined as mortgages over 90 days past due—which have risen to 0.19% as of the second quarter of 2024. This marks an increase from a record low of 0.14% seen in 2022. Related debts such as auto loans, credit cards, and lines of credit are also showing rising delinquency rates, serving as warning signals for potential future mortgage payment struggles.

While the CMHC maintains that current delinquency rates are still below pre-pandemic levels, they are expressing concerns about a potential surge in 2025. “Household debt remains a vulnerability for the Canadian economy,” the agency stated. “Mortgage debt has increased at a faster pace than inflation. With a considerable number of mortgages maturing in 2025 and 2026, many borrowers could be facing much higher interest rates than before, potentially intensifying their financial challenges.”

So, what does this mean for Ontario homeowners? If your mortgage is due for renewal in 2025, it’s crucial to start preparing now. How will the increase in payments impact your monthly budget? Will you need to adjust your lifestyle to accommodate the looming financial strain? Many Canadians are likely to feel the pinch, and understanding your options ahead of time will be vital.

As we approach this critical renewal phase, be proactive about exploring refinancing options or fixed-rate alternatives to mitigate any potential financial hurdles. Remember, knowledge is power, and being informed can make all the difference during these turbulent economic times!