Canadian Homeowners Encounter Refinancing Roadblocks as Home Equity Declines
For numerous Canadians, the dream of using homeownership as a financial safety net is fading rapidly. Homeowners who anticipated refinancing their mortgages to manage mounting debt are facing unexpected limitations, according to industry experts. The combination of declining property values, reduced equity, and escalating consumer debt is creating significant barriers to accessing funds through refinancing or switching lenders.
The Changing Landscape of Home Equity
Leah Zlatkin, a mortgage broker and expert at LowestRates.ca, reports that this trend is becoming increasingly common in conversations with homeowners approaching renewal periods. "Many expect to refinance to deal with debt at that point, only to discover that changes in equity, income, or borrowing limits have already narrowed what's possible," Zlatkin explained.
Canadian home prices, particularly in Ontario and British Columbia, have been experiencing declines for over three years, with some markets witnessing double-digit drops. This depreciation in home values, coupled with loan-to-value restrictions, can substantially reduce the available equity for refinancing, even for homeowners who have maintained consistent mortgage payments.
The Impact of Rising Consumer Debt
The increasing cost of living across Canada has contributed to growing credit card balances, with the average rising nearly two percent to $4,652 in late 2023. This accumulation of consumer debt following home purchases can significantly diminish borrowing capacity and restrict refinancing options.
Zlatkin emphasized that income changes present additional challenges for homeowners seeking refinancing. Factors such as:
- Job loss or reduced working hours
- Parental leave arrangements
- Approaching retirement transitions
can all make it more difficult to qualify for refinancing options that were previously accessible.
Renewal Realities and Mortgage Pressures
"Renewal is often treated like a reset button, but for many borrowers it reflects decisions made years earlier," Zlatkin noted. "If spending and debt growth outpace home equity, refinancing options can shrink quickly."
Morningstar DBRS recently highlighted that mortgage pressures continue to intensify for Canadians. The rating agency anticipates further credit deterioration in Canadian bank and credit union mortgage portfolios in 2026, though they expect these portfolios to remain reasonably resilient despite housing market softness and trade uncertainties.
Certain markets, particularly those exposed to potential tariffs under policies like those proposed by Donald Trump, face heightened vulnerability. Ontario communities including Windsor and Kitchener may experience pockets of borrower stress in this challenging environment.
The Coming Wave of Mortgage Renewals
Approximately 1.15 million mortgages are scheduled for renewal this year, with about one-third facing higher payment requirements according to Bank of Canada data. While the average increase is projected at six percent, borrowers with five-year fixed mortgages could experience hikes as high as twenty percent.
Morningstar DBRS identified particularly concerning trends for variable-rate, fixed-payment mortgage (VFM) borrowers. Around ten percent of these borrowers are expected to face payment increases exceeding forty percent, creating what the agency describes as "a material payment shock" for affected homeowners.
This evolving financial landscape signals a fundamental shift in how Canadian homeowners can leverage their properties for financial flexibility, with implications for household budgeting, debt management, and long-term financial planning across the country.
