Unemployment is the most common cause of late mortgage payments by Canadians, while high levels of household debt and mortgage renewal shock remain challenges, according to a new report by the Canada Mortgage and Housing Corporation (CMHC).
At the same time, borrowers are seeking more alternative mortgage lenders, which saw delinquencies — late debt payments by 90 days or more — also spike in 2024.
Canada’s national housing agency said that mortgage delinquencies kept rising in 2024, reaching a rate of 0.21 per cent in the fourth quarter, translating to roughly 30,000 delinquent accounts. That compares with 0.17 per cent at the end of 2023.
More recent data by Equifax Canada shows that delinquency rates continued to climb in Ontario in the first quarter of 2025.
These findings, and the fact that Canada’s jobless rate has been creeping up lately amid higher economic uncertainty, have got the deputy chief economist of the agency concerned about Canadians’ ability to manage their debt, who have the highest debt-to-income ratio among G7 nations.
“Canada has a very high level of household debt. We can handle that in the absence of, really, any external problem,” said Aled Ab Iorwerth, deputy chief economist at CMHC.
“The real vulnerability is if there’s a meaningful spike in unemployment,” he added. “So if people become unemployed, they will strive to pay their debts, but at some point it becomes a real struggle.”
The national unemployment rate rose to seven per cent in May — the highest level since September 2016, excluding the pandemic, according to Statistics Canada.
The mortgage delinquency rate of 0.21 per cent recorded at the end of last year is still lower than the 2019 level of 0.29 per cent.
Typically, people tend to default on other debt before their mortgages. In recent months, consumers have been showing greater signs of stress by delaying other kinds of debt payments.
Auto-loan delinquencies rose to 2.27 per cent in the fourth quarter of 2024 from 2.09 per cent in the same period in 2023, lines of credit delinquencies rose to 0.86 per cent from 0.72 per cent, while credit card delinquencies rose to 1.71 per cent from 1.56 per cent. The delinquency rate for home equity lines of credit didn’t change.
“Some Canadians are struggling with paying their debt, and this may be a warning sign for the future that, if the macroeconomic situation does not improve, then the delinquency rate, the arrears rate, in mortgages will actually start to trend upwards,” reaching pre-pandemic levels, said Ab Iorwerth.
Last month, the Bank of Canada said it worries that a severe and long-lasting trade war could push the rate of mortgage arrears beyond levels reached in the 2008 financial crisis (around 0.5 per cent), but bank governor Tiff Macklem called this a “pretty extreme scenario” that is not the bank’s base-case forecast.
Thursday’s report also highlighted that debt with Mortgage Investment Entities, alternative lenders who provide loans at higher interest rates to those who don’t qualify with banks, is growing faster than the national average.
These lenders also increased their reserves for bad debt.
The broader alternative segment, as well as other non-bank lenders have seen significant increases in delinquency rates over the past year, reaching 1.30 per cent and 0.31 per cent in the last three months of 2024, respectively.
“The effect of higher (interest) rates is that it’s becoming more demanding to get a down payment, to get approval, to be able to handle higher interest rates and so forth,” said Ab Iorwerth.
“And so if more of the higher risk borrowers are in the alternative segment, then it almost follows that the delinquency rate in the alternative segment is higher. It’s contained at the moment, but we’re continuing to monitor the situation.”
