Almost 10% of Toronto Mortgage Holders May Not Qualify to Refinance Next Year, BoC Says

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Toronto’s mortgage stress story is entering a new phase. For the past two years, the focus has been on higher monthly payments as pandemic-era mortgages renewed at steeper rates. Now the Bank of Canada is pointing to a quieter but more complicated risk: some homeowners may not have enough equity or income room to refinance when renewal pressure arrives.

The warning is not a prediction of widespread default. It is a signal that falling home values, stretched debt ratios and tighter refinancing rules can collide at the worst possible time for a household. In the Toronto area, where prices surged during the pandemic and then pulled back sharply, the Bank estimates that about 9% of borrowers renewing in 2027 may not qualify to refinance under current conditions.

The BoC Warning Is About Flexibility, Not Panic

The Bank of Canada’s concern centres on borrowers who may need to refinance to manage higher payments but cannot meet the rules to do so. In plain terms, refinancing can act like a pressure valve. It may allow a borrower to extend the amortization, consolidate debt or reduce monthly payments. But that option becomes harder when home equity shrinks or debt-service ratios are already too high.

The Toronto figure stands out because the Bank estimates about 9% of borrowers in the area renewing in 2027 would not be able to refinance at current home prices. Nationally, the estimate is closer to 4%. That gap matters. Toronto is not just another housing market; it is Canada’s largest and one of its most expensive. A modest percentage there can represent a meaningful pocket of financial stress.

Why Toronto Looks More Exposed Than Canada Overall

Toronto’s housing market carries a different risk profile than many parts of the country. Prices climbed aggressively during the low-rate period, especially in 2021 and early 2022, when buyers were competing with cheap debt and limited supply. Borrowers who purchased near that peak may have had less time to build equity before prices softened.

The Bank of Canada defines “Toronto” in this context as the Toronto census metropolitan area, not only the City of Toronto. That means the estimate captures a broad region, including surrounding municipalities where many buyers stretched budgets during the pandemic. The risk is most visible where borrowers took on large mortgages relative to income and then saw their property value fall. In those cases, renewal is not simply a matter of finding a new rate; it can become a test of whether the household still fits inside lender rules.

Falling Home Prices Have Changed the Math

Lower prices are usually welcomed by buyers, but they can create a problem for owners who need to refinance. The Bank of Canada says the price of a typical home in Canada has fallen about 5% over the past 12 months and about 20% since the 2022 peak. Those numbers help explain why some borrowers have less room to manoeuvre.

A homeowner who can comfortably keep making payments may not be affected much by a paper decline in value. The issue appears when the same homeowner needs to refinance. Lenders generally look at the loan relative to the property value, along with income and debt obligations. If the property is worth less than expected, the borrower may have too little equity to qualify. That is why a price correction can turn from a market headline into a household cash-flow problem.

The 2027 Renewal Wave Still Matters

The biggest mortgage shock has already moved through parts of the system, but it is not finished. The Bank of Canada says the last group of five-year, fixed-payment mortgages taken out during the pandemic will renew over the next 12 months. This group represents about 12% of all outstanding mortgages in Canada and is expected to see average payment increases of about 15%.

Another 14% of outstanding mortgages are also set to renew over the same period, but many are variable-payment mortgages or shorter-term fixed mortgages taken out after rates had already risen in 2022 and 2023. On average, those borrowers are not expected to see the same payment jump at renewal. That distinction is important: the highest-risk group is smaller than it once looked, but the remaining borrowers may include households with less room to absorb another financial hit.

The Stress Test Is Doing What It Was Designed to Do

Canada’s mortgage stress test was built to keep borrowers from taking on loans they could only afford under perfect conditions. Federally regulated lenders must assess borrowers using a higher qualifying rate than the contract rate in many cases. The idea is simple: a household should still be able to carry the mortgage if rates rise or expenses increase.

The same rules that protect the system can also limit options later. The Bank’s estimate focuses on borrowers renewing in 2027 with a current loan-to-value ratio above 80%, a gross debt service ratio above 39% and a total debt service ratio above 44%, even after exhausting the maximum 25-year amortization period available for insured mortgages. Those thresholds show why the problem is not only about rates. It is about equity, income, existing debts and the remaining length of the mortgage all lining up at renewal.

Toronto’s Condo Market Adds Another Layer of Risk

The stress is especially visible in the condo market. The Bank of Canada has pointed to Toronto and Vancouver condos as areas where price pressures are greatest. In Toronto, the condo market was heavily shaped by investors, presale purchases and small-unit construction during the boom years. When rates rose and population growth cooled, that model became less attractive.

The Bank’s separate analysis of Toronto condos found that condo starts fell sharply in 2024 and 2025, with 2025 starts reaching lows not seen since the 1990s. It also noted that condos accounted for more than half of new housing units built in Toronto over the past decade. For owners of small units, the issue is not only monthly payment pressure. A softer condo market can reduce resale value, weaken refinancing capacity and make it harder to exit without taking a loss.

Most Mortgage Holders Are Still Managing

The Bank of Canada is not saying Canada faces a mortgage crisis. Its broader view is that households have proven resilient, arrears remain low overall and many borrowers have benefited from income growth over the past five years. The report also says the share of borrowers falling behind on debt payments stabilized over the past 12 months after rising for several years.

That resilience matters because it keeps the 9% Toronto estimate in perspective. A borrower who cannot refinance does not automatically default. Some may renew with their existing lender, adjust spending, use savings, receive family support or sell before serious arrears build. Still, the pressure is uneven. The Bank says stress is most acute among Toronto-area borrowers who took out mortgages in 2022 and 2023, even though that group represents only about 2% of outstanding mortgage balances.

Refinancing Has Already Been Used as a Safety Valve

Many borrowers have already turned to refinancing as a way to manage higher payments. The Bank of Canada estimates that about 10% of borrowers who had a mortgage in 2022 have since refinanced. Among those who refinanced, about 70% extended their amortization by an average of six years. That helps explain why arrears have not surged despite higher rates.

But the more borrowers lean on refinancing, the more important home equity becomes. Extending an amortization can lower payments, but it may also keep households in debt for longer. If property values fall, the next borrower looking for the same relief may not qualify. In Toronto, that is the heart of the warning: the tool that helped some households through the first wave of renewal pressure may not be available to everyone in the next one.

Another Price Drop Would Raise the Risk

The Bank of Canada also modelled what could happen if home prices fell another 10%. Under that scenario, the share of borrowers unable to refinance at renewal would rise from about 4% to 7% nationally. In the Toronto area, it would rise from about 9% to 12%. That is not a dramatic system-wide surge, but it is a meaningful increase in a high-priced market.

The scenario shows why housing prices remain central to financial stability. A price decline can improve affordability for new buyers while weakening the position of recent owners. It can also affect investor confidence, developer activity and household spending. In a city where mortgages are large and condo values have been under pressure, even a moderate decline can change a borrower’s options at renewal.

The Job Market Is the Wild Card

The Bank of Canada’s household risk section repeatedly points to employment as a key concern. Higher payments are difficult, but job loss is often what turns financial pressure into delinquency. The report notes that unemployment has stayed in the range of roughly 6.5% to 7% over the past year, while trade uncertainty and geopolitical conflict could still weaken economic activity.

That matters for Toronto mortgage holders because high housing costs leave less room for surprise. A household may be able to manage a higher payment if both earners remain employed and wages continue to grow. But if overtime disappears, a contract ends or a layoff hits, refinancing may become more urgent. In that situation, lower equity and stricter debt-service limits can make the difference between a difficult renewal and a forced financial decision.

Why This Warning Matters Beyond Homeowners

The Bank of Canada’s estimate is not just a homeowner story. It affects banks, regulators, real estate agents, builders and policymakers. If more borrowers lose refinancing flexibility, lenders may face more difficult renewal conversations. If more owners choose to sell, local inventory could rise. If prices soften further, developers may delay projects, especially in the already weakened condo sector.

For now, the Bank’s broader message is measured. Canada’s financial system remains well positioned to absorb shocks, and most households are still managing. But Toronto’s refinancing risk shows how the after-effects of the pandemic housing boom are still working their way through the market. The number is small enough to avoid panic, but large enough to deserve attention — especially for borrowers who bought near the peak and are heading toward renewal with less equity than expected.

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