Canadian mortgage renewals face pressure from rising bond yields

Canadian homeowners face significantly higher mortgage payments as they renew contracts taken out during 2020 and 2021. An analysis by the C.D. Howe Institute notes that the five-year Government of Canada bond yield, which anchors fixed mortgage rates, has risen to 3.7 per cent from less than 1 per cent.

While the Bank of Canada has maintained its overnight rate, rising American bond yields have tightened Canadian conditions due to the integration of the two markets. The Canada Mortgage and Housing Corporation (CMHC) estimates that approximately one million mortgages are due for renewal in 2026, with the Bank of Canada suggesting about 60 per cent of outstanding mortgages will renew in 2025 or 2026.

Financial implications for households are substantial. Desjardins simulations indicate some borrowers could face payment increases of nearly 40 per cent. This trend complicates financial planning for Canadians approaching retirement, as many may enter their senior years with outstanding mortgage debt. Experts suggest that when mortgage rates are high, paying down principal may be more advantageous than investing, especially since mortgage interest on principal residences is not tax-deductible.