Canadian credit data suggests three key patterns that cause borrowers to fall 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, representing nearly 73 per cent of national GDP and about 74 per cent of total household debt, according to the central bank. This is up from just under $2.3 trillion in July 2024, according to Statistics Canada.
In the report, Bank of Canada researchers found that mortgage liabilities make up the largest portion of Canadian household debt and are a critical component for monitoring financial stress. The researchers examined TransUnion Canada loan data, which accounts for about 80 percent of all household mortgages in Canada from 2015 to 2024. They identified three significant patterns that led to mortgage defaults.
One pattern that Bank of Canada researchers have found is that households become increasingly reliant on consumer credit, such as credit cards and lines of credit, about two years before their first mortgage default. In comparison, credit utilization for non-defaulting borrowers remained stable over the same period.
Another pattern is that approximately one to two years before mortgage default, default rates on non-mortgage loan products begin to rise. Researchers at the Bank of Canada found that credit card delinquency rates began rising 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 default, both the pace of non-mortgage defaults and the growth of loan utilization ratios increase sharply, Bank of Canada researchers found. Credit utilization increased by about six percent on average, while credit card delinquency rates increased by up to 20 percent during this time.
The latest consumer borrowing data suggests increasing stress among borrowers.
Mortgage default rates have increased 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 are concerned that defaults are increasing, so we continue to monitor this very closely,” he said. “Because Canadians have so much household debt… that’s a huge vulnerability.”
Ongoing macroeconomic uncertainty surrounding the global trade war is a concern, ab Iorwerth said, noting that the possibility of higher job losses could exacerbate crime rates and that southern Ontario and parts of Quebec are hardest hit by trade-related issues.
According to the latest data from Equifax Canada Co., delinquency rates on 90-day mortgage balances rose 30 percent year-over-year across Canada in the fourth quarter, rising 54.5 percent in Ontario.
Toronto-Dominion (TD) Bank economist Maria Solovieva said overall mortgage defaults have not yet reached unprecedented levels, but there are clearly “stresses” in some areas or areas of the country with greater affordability constraints.
CMHC is most concerned about higher crime rates in Toronto and Vancouver compared to the rest of the country, ab Iorwerth said.
Toronto’s mortgage delinquency rate has more than quadrupled from post-pandemic lows, according to a February report from CMHC using data from Equifax. While mortgage delinquencies still remain low, CMHC predicts they will continue to rise next year due to a combination of higher household debt and higher housing prices, a weaker labor market and investor activity leading to lower rents and rising transportation costs.
Falling home prices and sluggish sales also mean homeowners may be less able to sell quickly in the face of financial challenges and rely on home equity when needed, CMHC said.
Mortgage defaults don’t necessarily show up in the data right away, Solovieva said. “It’s the final indicator.”
The data consistently suggests that borrowers tend to default first on their auto loans and then their credit cards before defaulting on their mortgage, which brings more serious consequences such as foreclosure and the possibility of losing other assets, ab Iorwerth said.
Auto loan defaults are currently the highest at 2.6 percent, followed by credit card defaults at 1.8 percent and rising, he said.
“Auto loans will be the main candidate for default,” he said. “(Borrowers) will do absolutely anything to try to pay the mortgage.”
According to Equifax, missed payments on non-mortgage debt peaked in late December, with 90-day delinquencies rising to 1.73 percent. Credit card balances rose four percent to a record $131 billion in the fourth quarter of 2025.
Solovieva said TD typically tracks monthly bankruptcy rates as an indicator of higher mortgage default rates.
According to the latest data from the Office of the Superintendent of Bankruptcy, a federal agency, the total number of consumer bankruptcies rose 2.3 percent year-over-year in December, with consumer bankruptcies increasing 4.3 percent over the same period.
“It’s not necessarily very alarming right now, but we’re definitely watching it,” Solovieva said. Other economic factors, such as changes in employment measures and trade negotiations, would also impact TD’s mortgage default forecast.
Although lower interest rates have reduced some of the risks associated with the mortgage renewal wave, first-time homebuyers are still the group most at risk of defaulting on their mortgages in the pandemic era, ab Iorwerth said.
The Bank of Canada last reported in July that homeowners’ mortgage rates could rise by up to 20 per cent on renewals, with 60 per cent of all mortgage holders expecting some increase in their payments in 2025 and 2026.
“If your income growth has not caught up or if you have taken on additional loans that prevent you from increasing the mortgage payment by 20 percent, then of course you may end up defaulting,” Solovieva said.
She said Canadian households saw aggregate disposable income growth of nearly eight per cent in 2024, although that growth slowed to 4.7 per cent in 2025.
“It’s still healthy,” she said. “That’s why we didn’t see a massive increase in defaults.”
Canadians have also refinanced their mortgages or extended the amortization period, she added, helping them spread their loan payments into lower monthly amounts. Some households are under pressure, but overall they are coming out of the renewal cycle well, she said.
Solovieva said TD expects the wave of mortgage renewals to bottom out in the next few quarters.
“There are probably a few more quarters where we could see an increase in crime,” she said. “At this point we expect (the mortgage default rate) to peak and turn the corner.”
• Email: slouis@postmedia.com