Canadians have come out of the pandemic borrowing binge remarkably well, weathering a steep climb in

interest rates , an unsteady economy and rising unemployment. Though the Bank of Canada has reduced its rate to 2.25 per cent, it still remains higher than it has been for the past 15 years, outside of the pandemic.

Nor has the wave of mortgage renewals off pandemic lows yet reached its peak. CIBC Capital Markets expects that in the second half of next year the share of borrowers facing payment shocks of more than 40 per cent will hit 5 to 6 per cent of the mortgage portfolio, more than double the share in 2025.

Yet so far there has been no signs of trouble in insolvency rates , which have stabilized at levels seen before the pandemic. It’s at the margins of the credit world that observers are beginning to notice the strain.

In a report this month Morningstar DBRS warned that mortgage delinquencies are rising at Canada’s medium-sized banks.

These smaller banks, which offer an alternative to borrowers unable to get a loan at one of Canada’s Big Six, held $67.6 billion in residential mortgages as of June, 2025.

DBRS said still high interest rates and rising unemployment have contributed to the credit deterioration and tariff uncertainty has amplified those pressures, particularly in Ontario and British Columbia, where housing prices have fallen the most.

Of the rated mid-sized banks, Fairstone Bank of Canada and subsidiary Home Trust Company, and Equitable Bank are showing the most strain, while Laurentian Bank of Canada has shown resiliency, said DBRS.

According to their calculations, Fairstone’s mortgage impairment ratio hit 2.2 per cent in the second quarter of 2025, up from 0.3 per cent at the end of 2022 and Equitable’s rose to 1.1 per cent from 0.2 per cent.

“Heading into 2026, we anticipate credit pressures to continue as mortgage rates are still high and tariff uncertainty persists, affecting overall market sentiment,” said DBRS.

Another report looking at the quality of Canadian household credit by CIBC deputy-chief economist Benjamin Tal also warns of pressures building at the margins.

Early-stage delinquencies in below-prime mortgages are now well above pre-COVID levels, and there are signs that homeowners are struggling with non-mortgage debt such as credit cards and lines of credit.

“This does not bode well for the mortgage portfolio, mainly in the second half of 2026 when we expect the impact of mortgage refinancing payment shocks to be much more visible, said Tal.

The 90+ day delinquency rate of borrowers with no mortgage debt has also been rising and is now 0.2 per cent higher than before COVID.

“Given where we are in the economic cycle, we doubt that that rate will start trending downward any time soon. In fact, the opposite is the case,” said Tal.

Tal expects delinquency rates to rise in coming quarters, but further credit losses should be contained by unemployment hitting a peak and lenders taking pre-emptive action.

Morningstar DBRS also said despite increased impairments, actual loan losses have remained manageable.

“In our view, generally good underwriting practices, low uninsured LTVs (loan-to-value ratios), and adequate reserve levels provide a sufficient cushion in this challenging environment,” the report said.

READ OUR RED INK SERIES

Governments around the world are awash in debt, and Canada is no exception. But just how severe is the problem and what will the consequences be? With the federal deficit in the spotlight ahead of the Nov. 4 budget, the Financial Post is exploring the state of sovereign debt in Canada and beyond in a weeklong series called Red Ink. From a primer on Canadian indebtedness to the consequences of a U.S. default, we’ll explore some major questions about government debt and the looming deficit.

  • How soaring government debt could play a starring role in the next great financial crisis
  • Canada is in a small club of countries with a AAA credit rating. How long can it last?
  • Danielle Smith: Balancing the budget gets a lot easier if you build a pipeline
  • Ottawa’s new budget framework is stirring controversy. Here’s what you need to know about it

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Canada’s economy shrank in August , missing expectations, but an estimate of 0.1 per cent growth in September should keep us out of recession.

With the second quarter in the red, contraction in the third would qualify as a technical recession. But now it looks like the economy, though weakened by U.S. tariffs, should eke out some gains.

Though the August gross domestic product figures were disappointing, they are not likely enough to press the Bank of Canada back into action,

say economists.  After cutting its rate to 2.25 per cent last week, the central bank said it was probably done if the economy performed as it expected.

Statistics Canada said Friday that GDP is on track to grow by 0.4 per cent in the third quarter. The Bank of Canada’s forecast is 0.5 per cent, but governor Tiff Macklem warned the weak growth will “not feel good.”

  • Earnings: Franco-Nevada Corp., Kinross Gold Corp., Loews Corp., Topaz Energy Corp. Palantir Technologies Inc.,
  • Canadian steel magnate offers $1,000 reward to whistleblowers who report foreign steel in public projects
  • Louis Têtu: Why Canada has to get artificial intelligence right
  • Ottawa’s new budget framework is stirring controversy. Here’s what you need to know about it

Bianca, 65, would like to retire in a year – if her investment portfolio can generate $6,000 a year in after-tax dollars.

Is this a pipe dream? Would she be better off working an additional year or two, especially given the high cost of living and the fact she has a mortgage?

Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).

McLister on mortgages

Family Finance crunches the numbers. Want to learn more about mortgages? Mortgage strategist Robert McLister’s

Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his

Financial Post on YouTube

mortgage rate page for Canada’s lowest national mortgage rates, updated daily. Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.

Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, Canadian Press and Bloomberg.

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  • Here’s how Canada’s pension system ranks against the rest of the world’s
  • Why economists are cutting their forecasts for the Canadian dollar

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