What It Means for Residential and Commercial Real Estate in Canada and the U.S.
For years, economists have warned about the “mortgage renewal wave.” Now, it’s no longer a prediction. It’s happening.
Millions of homeowners who locked in historically low mortgage rates during the pandemic are renewing into a much different lending environment. While interest rates have eased from their 2023 peaks, they’re still significantly higher than the ultra-low rates many borrowers secured in 2020 and 2021.
For some households, renewal will mean a manageable increase in monthly payments. For others, it may require difficult financial decisions.
The good news? Despite the headlines, this isn’t shaping up to be the housing market collapse many feared.
Instead, we’re likely entering a period of market recalibration—one that will create both challenges and opportunities across residential and commercial real estate.
Canada’s Mortgage Renewal Wave
Canada’s mortgage system is unique.
Unlike the United States, where 30-year fixed-rate mortgages are common, most Canadians renew every three to five years. That means interest rate changes are felt much more quickly.
According to the Bank of Canada, roughly 60% of all outstanding mortgages are expected to renew during 2025 and 2026. About 60% of those borrowers will see higher monthly payments, with homeowners renewing five-year fixed mortgages potentially experiencing payment increases of 15-20% compared to what they were paying at the end of 2024.
That sounds alarming.
But context matters.
Most borrowers qualified using Canada’s mortgage stress test, which required them to demonstrate they could afford rates approximately two percentage points higher than their contract rate. Many have also benefited from several years of income growth, principal repayment and increased home equity since purchasing their homes.
The result?
While many households will certainly feel pressure, Canada’s banking system remains well positioned to absorb the renewal cycle.
Why This Isn’t 2008
Whenever housing markets face uncertainty, comparisons to the U.S. housing crash inevitably surface.
The comparison is understandable—but largely inaccurate.
The financial crisis in 2008 was driven primarily by poor lending standards, subprime mortgages and excessive leverage throughout the financial system.
Today’s environment is fundamentally different.
Canadian borrowers generally have stronger credit profiles, stricter underwriting standards and significantly more home equity than homeowners did prior to the global financial crisis.
Mortgage arrears have been increasing modestly, particularly in Toronto and Vancouver, but they remain historically low. Much of the financial stress is concentrated among buyers who purchased near the peak of the pandemic housing boom using maximum leverage.
Rather than widespread defaults, we are more likely to see selective selling and longer marketing times in certain markets.
The Residential Market Will Become More Balanced
One of the biggest impacts of the renewal wave will likely be changing market psychology.
For the past several years, many homeowners simply waited for rates to fall.
Now, reality is setting in.
Some owners will decide to downsize.
Others may delay renovations, refinance, extend amortizations or sell investment properties that no longer generate positive cash flow.
This gradual increase in supply could help create more balanced housing markets across many Canadian cities.
For buyers, that’s encouraging news.
Instead of competing against dozens of offers within days, purchasers may have greater negotiating power, more inventory to choose from and additional time to complete inspections and financing.
In many markets, affordability remains a challenge, but increased supply could slowly improve accessibility for first-time buyers.
Investors Will Separate Into Two Groups
Real estate investors will not all experience the renewal wave equally.
Highly leveraged investors who purchased properties with minimal cash flow during the low-rate environment may find renewals significantly reduce or eliminate monthly profits.
Some may choose to sell.
Others will inject additional capital to keep their portfolios.
Meanwhile, experienced investors with stronger balance sheets are likely preparing for opportunities.
Periods of uncertainty often create motivated sellers, better pricing and less competition.
History has repeatedly shown that disciplined investors tend to expand during periods when others become cautious.
As Warren Buffett famously said:
“Be fearful when others are greedy, and greedy when others are fearful.”
That principle often applies to real estate as well.
Commercial Real Estate Faces a Different Challenge
While residential mortgages dominate the headlines, commercial real estate faces its own renewal story.
Office buildings continue adjusting to hybrid work.
Retail has become increasingly experience-focused.
Industrial properties remain one of the strongest sectors due to continued demand for logistics and warehousing.
Multifamily housing continues attracting institutional investors because Canada’s population growth continues to outpace housing construction.
Commercial borrowers typically have shorter loan terms and larger financing requirements than homeowners.
Higher borrowing costs can significantly affect investment returns, refinancing decisions and property valuations.
Properties purchased at compressed capitalization rates during the low-interest-rate environment may require owners to contribute additional equity when refinancing.
This is particularly relevant for office assets, where reduced occupancy has already pressured values.
However, not every commercial sector is under stress.
Well-located multifamily, industrial and necessity-based retail assets continue demonstrating resilience despite higher financing costs.
What About the United States?
The United States enters this period from a very different position.
Most American homeowners hold 30-year fixed-rate mortgages.
Many refinanced during the pandemic at rates between 2% and 3%.
As a result, millions of homeowners have little incentive to sell because doing so would require taking on a much higher mortgage rate.
Economists often refer to this as the “lock-in effect.”
Ironically, rather than creating financial distress, it has contributed to a shortage of homes available for sale.
Commercial real estate tells a different story.
Many office buildings, hotels and commercial properties rely on shorter-term financing.
As loans mature, refinancing at today’s interest rates has become more expensive, putting pressure on valuations across several sectors—particularly office properties in major U.S. cities.
This creates both risks and opportunities for institutional investors and private equity firms looking to acquire quality assets at discounted prices.
Opportunity Often Hides Behind Uncertainty
Every real estate cycle creates winners and losers.
The mortgage renewal wave will be no different.
Some homeowners will need to adjust spending.
Some investors will exit.
Some properties will come to market.
But periods of adjustment also create opportunity.
For buyers, it may mean greater selection and improved negotiating power.
For investors, it could present opportunities to acquire quality assets from motivated sellers.
For experienced REALTORS®, mortgage professionals and financial advisors, it represents an opportunity to educate clients rather than fuel fear.
Real estate has always been cyclical.
Markets cool.
Markets recover.
Long-term wealth is typically built not by perfectly timing the market, but by making informed decisions throughout every stage of the cycle.
The mortgage renewal wave is unlikely to define Canada’s housing market for decades to come.
Instead, it will likely become another chapter in the natural evolution of real estate—one that rewards preparation, patience and sound financial planning over speculation.
For those willing to stay informed and think long term, this may prove to be less of a crisis and more of a reset.
Let’s build wealth the smart way, together!
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