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The sharp run-up in interest rates over the past 19 months has been painful for consumers, but unless rates drop significantly, almost two-thirds of Canadian mortgage borrowers still face a punishing “payment shock” over the next three years.

Between 2024 and 2026, an estimated $900-billion worth of Canadian mortgages – almost 60 per cent of all outstanding mortgages at chartered banks – are due to renew and could face a sharp increase in payments, according to a report released this week by Darko Mihelic, an analyst who covers the banking sector for RBC Capital Markets. Those payment increases range from a weighted average of 32 per cent next year to 48 per cent in 2026.

The focus of the report is the impact the payment shocks will have on the retail operations at Canada’s big banks, but the economic fallout is obvious if the current interest rate environment persists.

The biggest shock awaits fixed-payment, variable-rate mortgages set to renew in 2026. A five-year variable mortgage renewing that October would see payments jump 76 per cent if mortgage rates stayed around 6 per cent. A one-percentage-point drop to 5 per cent would ease the payment shock, but only to 63 per cent. “Interest rates would need to decline significantly to ‘save’ this cohort,” the report says. Even if the Bank of Canada were to slash its benchmark rate to 0.25 per cent by that year, payments for variable-rate mortgages as a whole would still shoot up 20 per cent.

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There have been fears these increases could lead to a rise in defaults, but Mr. Mihelic believes those fears are overblown. That’s because banks are already taking measures to help overstretched borrowers, such as working with their clients to increase monthly payments or extending the amortization of their loans.

But those measures will still leave households with less money to spend elsewhere. As it is, the report notes, the Bank of Canada’s latest consumer survey found that almost 60 per cent of respondents have been reducing their spending.

Decoder is a weekly feature that unpacks an important economic chart.

Editor’s note: This article has been updated to clarify that variable-rate mortgages with fixed payments (as opposed to those with payments that increase as interest rates increase) will receive the biggest shock upon renewal in 2026.

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