Heading For A Mortgage Default? Bank Of Canada Research Lays Out Three Telltale Signs

Canadian credit data point to three key patterns that lead up to borrowers falling behind on mortgage payments, according to a recent report from the Bank of Canada .

As of November 2025, outstanding residential mortgage debt in Canada reached about $2.4 trillion, equivalent to nearly 73 per cent of national GDP and representing about 74 per cent of total household debt , the central bank said. This was up from just under $2.3 trillion in July 2024, according to Statistics Canada.

In the report, Bank of Canada researchers noted mortgage liabilities make up the largest portion of debt for Canadian households and are a crucial component for monitoring financial stress. The researchers examined TransUnion Canada borrower credit data representing roughly 80 per cent of all household mortgages in Canada from 2015 to 2024. They determined three significant patterns leading up to mortgage delinquency.

One pattern Bank of Canada researchers found is that, about two years before their first mortgage delinquency event, households begin to rely more and more heavily on consumer credit, such as credit cards and lines of credit. In comparison, credit utilization remained stable for non-delinquent borrowers during the same period.

Another pattern is that about one to two years before mortgage delinquency, delinquency rates on non‑mortgage credit products begin to increase. Bank of Canada researchers found credit card delinquency rates began rising the earliest, followed by other credit products such as auto loans, home equity lines of credit (HELOC), lines of credit and installment loans.

Third, about six months before mortgage delinquency, both the pace of non‑mortgage delinquencies and the growth in credit‑utilization rates pick up sharply, Bank of Canada researchers found. Credit utilization spiked by about six per cent on average, while credit card delinquency rates went up by as much as 20 per cent during this time.

The latest consumer borrowing data indicate rising stress among borrowers.

Mortgage delinquency rates have risen from very low rates during the pandemic to rates more in line with pre-pandemic levels, said Aled ab Iorwerth, deputy chief economist at the Canada Mortgage and Housing Corporation (CMHC).

“We’re concerned that the delinquencies are going up, so we’re continuing to monitor that quite closely,” he said. “Because Canadians have so much household debt … it’s a big vulnerability.”

Ongoing macroeconomic uncertainty regarding the global trade war is causing concern, ab Iorwerth said, noting the possibility of higher job losses could worsen delinquency rates and that Southern Ontario and parts of Quebec are most exposed to trade-related issues.

According to the latest data from Equifax Canada Co., 90+ day mortgage balance delinquency rates jumped 30 per cent year over year in the fourth quarter across Canada, rising as much as 54.5 per cent in Ontario.

Toronto-Dominion (TD) Bank economist Maria Solovieva said that aggregate mortgage default numbers have not reached unprecedented levels yet, but there are clearly “strains” in some pockets, or areas of the country with greater affordability constraints.

CMHC is most concerned about higher delinquency rates in Toronto and Vancouver, compared with the rest of the country, ab Iorwerth said.

The mortgage arrears rate in Toronto has more than quadrupled from postpandemic lows, according to a February report from CMHC which uses data from Equifax. While mortgage arrears still remain low, CMHC said it projects they will continue climbing over the next year, due to a combination of higher household debt levels and housing prices, a weaker labour market and investor activity leading to softer rents and increasing carrying costs.

Declining home prices and sluggish sales also means homeowners may be less able to sell quickly and rely on home equity if needed amid financial challenges, CMHC said.

Mortgage delinquencies don’t necessarily show up in the data right away, Solovieva said. “It’s the last indicator.”

Data consistently indicate that borrowers tend to default on auto loans first and then credit cards before defaulting on their mortgage, which comes with more severe consequences such as foreclosure and the possibility of losing other assets, said ab Iorwerth.

Auto loan delinquencies are currently trending highest at 2.6 per cent, with credit card delinquencies just behind at 1.8 per cent and climbing, he said.

“Auto loans will be the primary candidate for delinquencies,” he said. “(Borrowers) will do absolutely everything to try and pay the mortgage.”

Missed payments on non-mortgage debt peaked at the end of December, with 90+ day balance delinquency rising to 1.73 per cent, according to Equifax. Credit card balances rose four per cent to reach a record $131 billion in the fourth quarter of 2025.

Solovieva said TD typically tracks monthly insolvency rates as an indicator of higher mortgage delinquency rates.

Total consumer insolvencies ticked up by 2.3 per cent year over year in December, with consumer bankruptcies increasing by 4.3 per cent during the same period, according to the latest data from the Office of the Superintendent of Bankruptcy , a federal agency.

“It’s not necessarily very alarming right now, but we are definitely watching that,” Solovieva said. Other economic factors, such as changes in employment measures and trade negotiations, would affect TD’s mortgage delinquency forecast as well.

Although lower interest rates have reduced some of the risks posed by the mortgage renewal wave, pandemic-era first-time homebuyers are still the group most at risk at defaulting on their mortgages, ab Iorwerth said.

The Bank of Canada most recently reported in July that homeowners could see their mortgage rate jump by as much as 20 per cent upon renewals, with 60 per cent of all mortgage holders expected to see some payment increase in 2025 and 2026.

“If your income growth did not catch up, or if you have any additional borrowing that restrains your ability to increase that mortgage payment by 20 per cent, then of course you may end up defaulting,” said Solovieva.

She said Canadian households saw aggregate disposable income growth of nearly eight per cent in 2024, though this slowed to 4.7 per cent growth in 2025.

“It’s still healthy,” she said. “This is why we didn’t see a massive increase in delinquencies.”

Canadians have also been refinancing or extending the amortization period on their mortgages, she added, which helps them spread out their loan payments in lower monthly amounts. Some households are experiencing strain but, on aggregate, they are coming out of the renewal cycle in decent shape, she said.

Solovieva said TD is anticipating the mortgage renewal wave to bottom out after the next couple of quarters.

“There are probably still a couple of quarters where we might see growth in delinquency,” she said. “At that point, we expect (the mortgage delinquency rate) to peak and turn the corner.”

• The (high) opportunity cost of paying off your mortgage early
• Despite so much uncertainty, borrowers still flock to floating rates

• Email: slouis@postmedia.com