By David Ljunggren

OTTAWA – Some Canadians could have their monthly mortgage payments rise by up to 45% in 2025-2026 if rates go up, as per a Bank of Canada scenario.

Inflation levels that are at an all-time high of 31 years could mean households will spend more on food and fuel if wages do not rise, according to the annual review of the financial system by central banks.

It stated that households with high levels of debt are particularly vulnerable to income loss in this setting.

In April and June, the bank raised rates 50 basis points. Money markets expect a half-point increase in July.

Canadians who have a variable rate mortgage with high loan-to income ratios will see their monthly payments increase by 45% upon renewal in 2025-2526. All types of mortgages that were originated in 2020-21 will see a 30% increase in monthly payments.

This scenario was based on five-year mortgages that were taken out by banks between 2020-21 and then refinanced in 2025-26, at a time when interest rates had fallen to record levels. The scenario assumed that variable- and fixed rate mortgages would be renewed at 4.4% and 4.5%, respectively, in 2025-25.

These households are likely to see the highest rate increases because they got a mortgage at record rates. The historically large amount of homeowners who chose variable-rate mortgages is a prime example.

The bank stated that “a larger percentage of households obtained mortgages which were high relative to their income.” A high loan to income ratio is defined by the bank as mortgages with a ratio of loan-to–income above 450% when they were originated.

According to the bank, it paid particular attention in the review to the fact that more Canadian households had high levels of debt. According to the bank, those who entered the market during the last year will be more vulnerable in the event of significant price declines.