Bank of Canada Warns: Falling Home Prices Could Trap Toronto Borrowers at Mortgage Renewal
If you own a home in Toronto and have a high mortgage, you could face a serious problem when it's time to renew. The Bank of Canada warns that falling home prices may leave some borrowers unable to refinance, forcing them to sell or accept much higher payments.
Here’s what you need to know.
What This Means for You
The key risk is this: when your mortgage comes up for renewal, you may not have enough home equity to switch to a new lender. If your home's value has dropped significantly, you could be stuck with your current lender's renewal terms — which might be much higher than you expected.
Home prices in Canada are down about 20% from their 2022 peak. The sharpest drops are in Ontario and British Columbia.
Key Numbers to Watch
- 4% of borrowers renewing in 2027 nationally may be unable to refinance
- 9% of Toronto borrowers renewing in 2027 face this risk
- If prices fall another 10%, that jumps to 7% nationally and 12% in Toronto
- Risk is highest for borrowers with loan-to-income ratios above 450%
- Most at risk: those who took out mortgages in 2022-2023
Who Is Affected
This warning targets specific groups:
- Toronto-area homeowners with high debt levels
- Condo buyers in Toronto and Vancouver who bought pre-construction
- Borrowers with less than 20% equity in their home
- Anyone renewing in the next 12-18 months in a high-price-drop area
The good news? Over 90% of borrowers who renewed in the past year did so at rates below what they originally qualified for. Many extended their amortizations to keep payments manageable. Mortgage arrears remain low overall.
What You Should Do
If you're renewing soon, especially in Toronto or other areas with big price drops, take these steps:
- Check your home's current value — Use recent sales in your neighbourhood to estimate your equity position
- Calculate your equity — If you have less than 20% equity, you may not qualify for refinancing with a new lender
- Talk to your current lender early — Ask about renewal options at least 4-6 months before your renewal date
- Consider extending your amortization — This can lower your monthly payments
- Look at switching to a fixed rate — This locks in your payment and protects against future rate hikes
- If you're struggling, get help — Contact a non-profit credit counselor or your lender's hardship department
The Bank of Canada expects the renewal shock to ease by late 2027. But for now, planning ahead is essential.
Bottom Line
Falling home prices are creating a real risk for some Toronto-area borrowers. If you have high debt and low equity, you could face trouble at renewal. Check your home's value now, talk to your lender early, and explore your options. Most borrowers will be fine, but those in the highest-risk group need to act now to avoid a forced sale or unaffordable payments.
Source: Bank of Canada Financial Stability Report, as reported by Canadian Mortgage Trends