Illustration by Illustrations by Jarred Briggs
When the Bank of Canada started rapidly ratcheting up interest rates to fight inflation in 2022, a chorus of economists and housing experts predicted that a calamity was brewing in the Canadian housing market.
Masses of Canadians had just purchased a home or signed a mortgage when the BoC’s interest rate was at a historic low during the early stages of the pandemic.
As interest rates rose later, mortgage rates suddenly became much more expensive, calling into question whether pandemic buyers could cope with payments upon renewal.
Today, the worst case scenario hasn’t played out. Homeowners have largely been able to pay their mortgages even at higher borrowing rates, and they aren’t selling their homes en masse.
That’s partly because wages grew quickly in the past five years, and partly because interest rates came down from their peaks by late 2024, before the renewal wave started in earnest. Mortgage delinquencies did grow slightly this year, but they remain below historic norms.
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But it hasn’t been easy for the estimated 2.5 million Canadian households renewing at higher mortgage rates.
A recent survey from TD Bank found that 39 per cent of respondents facing higher mortgage payments will have to either rely on their savings or reduce how much they save to make ends meet. About 56 per cent will have to reduce their household spending, the survey found.
Here’s a look at how four Canadian households are coping with higher mortgage rates, and the sacrifices they had to make to get by.
Depleted emergency funds
Michael Toope usually plans a road trip from Ottawa to Hamilton in spring to pick his son up at the end of his university semester.
But this year, he might cancel it because he simply can’t afford the roughly $400 that the trip would cost in fuel and accommodation.
Mr. Toope, who works in the public sector, didn’t always have to scrutinize his expenses this way.
He renewed his mortgage this year with a balance that is roughly the same as it was five years ago. That’s partly because he bought a co-owner out of their half of the property, and partly because much of his payments for his fixed-payment variable mortgage in the past five years went toward interest when rates increased.
He renewed at 4.25 per cent (almost double his previous rate), and his mortgage payments have jumped from just under $500 every two weeks to $950 every two weeks.
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The jump in payments is despite Mr. Toope’s decision to extend his amortization back to 25 years when he renewed this year.
Mr. Toope now spends more than 40 per cent of his income on housing costs. Adjusting to that reality has been a trial and error process.
For example, Mr. Toope says that when he renewed his mortgage in late 2025, he was already treading water. But that was because he had maxed out his contributions to the Canada Pension Plan and Employment Insurance program (deductions toward these programs often max out later in the year, leading to higher paycheques for a period).
In the new year, those payments restarted and led to a $350 cut to his take-home pay.
Suddenly, there was no slack at all in his finances. Then his car broke down and needed a repair that would cost more than $3,000.
Since January, he has drained his entire emergency savings fund, and has stopped contributing to retirement savings in his tax-free savings account and drew from it recently.
“I’m hopeful this is a temporary situation and within three or four months I can get back to everything being fine month-to-month,” Mr. Toope says.
For now, he has stopped any foreign travel and he doesn’t eat out more than once a month. He made a spreadsheet to track his grocery expenses and is trying to cut wherever he can.
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The pro-active payer
Bonnie Clancy, 58, grew up in a household where money was tight. She has always tried to ensure that she doesn’t put herself in that position as an adult.
So when she renewed into a five-year fixed-rate mortgage at 1.86 per cent during the onset of the pandemic, she was already saving and preparing for when things would inevitably get more expensive.
Ms. Clancy boosted her efforts when the Bank of Canada started rapidly increasing interest rates in 2022.
A single mother of three, she sold her Honda minivan and downgraded to a Toyota Corolla. Two of her kids are teenagers now and don’t need to be carted around any more.
The monthly savings in gas, insurance and car payments came to roughly $500.
She stopped going on vacation to places such as Jamaica and Mexico, opting for staycations and treating herself to nice restaurants.
Ms. Clancy, who lives in London, Ont., saved $15,000 over her five-year mortgage term and used it all to prepay her mortgage balance.
Today, her mortgage payments are actually slightly lower than they were in her previous term, even though her interest rate jumped to 3.79 per cent.
Ms. Clancy acknowledges that she bought her home in the 2000s and, as a result, doesn’t have a massive mortgage balance. But she hopes her situation serves as a lesson that being pro-active and preparing for uncertain times can give you more slack.
“A lot of people take it for granted when times are good,” she says.
“I wouldn’t say I stopped living, I just made some lifestyle swaps.”
Stretched too thin
Brendan Ryan, 36, has already been dealing with the impact of high interest rates for three years after renewing his mortgage in 2023.
He bought his home in 2018, so his interest rates weren’t quite as low as during the early days of the pandemic.
However, his renewal in 2023 came around the time that interest rates were at their peak, and he took on a mortgage rate above 5 per cent.
That’s much higher than what has been available on the market for the past year.
Mr. Ryan says he and his partner weren’t able to make any prepayments toward their mortgage to blunt the impact because they were already stretched thin to buy their home.
The new mortgage, which was on a three-year term, costs $500 more per month upon renewal.
The couple managed at first by cutting how much they put into savings each month and switching to cheaper brands at the grocery store.
But they also faced a number of financial challenges. Their car died, Mr. Ryan’s partner lost her job and the couple started expensive (but successful) fertility treatments.
The unforeseen expenses cost roughly $40,000, much of which was funded by a line of credit. Mr. Ryan says he has almost completely stopped saving for retirement and regrets not extending his amortization period.
“Stress levels are much, much higher,” he says.
“Before the mortgage, we were definitely easygoing, we could plan vacations. Now that’s completely out of the question.”
The couple will renew their mortgage toward the end of 2026, and they hope that a recent spike in mortgage rates will cool down later this year.
A new retirement plan
Rick Terpstra, 56, and his wife have talked about renting out a room in their house to a student in the past, but they decided against it because they appreciated their own space.
“There were fleeting times when we talked about it, but thought privacy was better,” Mr. Terpstra says.
Now, they’re considering it more seriously after they renewed their mortgage at a higher rate.
The couple was mortgage-free until a move to Sarnia, Ont., for work in 2021.
They took on a mortgage of just under $400,000 with a 2.05-per-cent interest rate, which cost roughly $1,700 a month in payments. This year, they renewed at 3.95 per cent – increasing their payments to almost $2,400 a month.
Mr. Terpstra and his wife made a $20,000 lump sum payment to limit their payment increases, but they’re still paying about $150 more per month.
“We were lucky to have extra money to throw it down and help out,” he says.
The situation has opened their eyes about taking a mortgage into retirement, as they still have 19 years left in their amortization. Mr. Tepstra says they are seriously talking about renting to a student to help pay their mortgage quicker.
