When the Bank of Canada raises interest rates, it’s not just a macroeconomic headline — it directly impacts wallets across the country. In mid-2025, with the policy rate sitting at 4.75%, Canadians are feeling pressure from all sides: rising mortgage renewals, credit card bills, and loan payments. The ripple effects extend from individual households to the broader consumer economy.
Rate Hikes, Renewals & Payment Stress
More than 1.4 million Canadians missed at least one credit payment in Q1 2025, according to Equifax Canada, a reflection of increasing financial strain as mortgage renewals hit higher rates. National consumer debt has now reached C$2.55 trillion, up 4% year-over-year.
“We actually think this is more to do with pulling back on that discretionary spend,” said Rebecca Oakes, VP of Advanced Analytics at Equifax Canada. “And that is going to have a knock-on impact to business and that ultimately will have a knock-on impact to employment levels.”
Mortgage Renewals Create a “Wall of Shock”
An estimated 60% of existing mortgages in Canada are up for renewal between 2025 and 2026 — a phenomenon some economists are calling the “Great Renewal.” Unlike in the U.S., where 30-year fixed mortgages are common, Canadian terms are often 4–5 years, meaning higher rates hit faster.
“Over the next two years, about 60% of Canadian mortgages will face significant payment increases upon renewal… [but] most mortgage holders will face payment increases smaller than they were stress‑tested for,” said Carolyn Rogers, Senior Deputy Governor of the Bank of Canada.
Nonetheless, higher monthly costs are already eating into discretionary spending, which the BoC’s Financial Stability Report warns could weigh on overall economic momentum.
Non-Mortgage Debt & Youth Vulnerability
Delinquency on non-mortgage debt has reached levels not seen since the 2008–2009 recession. In Q1 2025, average non-mortgage debt reached C$21,859, according to Equifax. This includes credit cards, lines of credit, car loans, and personal loans — and for many Canadians, these debts are becoming increasingly difficult to manage as interest rates rise.
Young Canadians are particularly vulnerable. Many entered adulthood during a low-interest era and are now navigating sharp increases in borrowing costs alongside stagnant wages and high housing costs. As a result:
- Credit card delinquencies rose 21.7% YoY among those under 35.
- Non-mortgage delinquencies increased 8.9% YoY, outpacing the 6.5% rise among mortgage holders.
A growing number of young Canadians rely on alternative credit options such as Buy Now Pay Later (BNPL) platforms and online lenders, which may not offer the same consumer protections as traditional banks. Without strong financial literacy support, this group is at risk of compounding debt cycles and credit score damage.
Meanwhile, lenders have begun tightening approval criteria, requiring higher credit scores and more consistent income verification — creating further barriers to access for younger and lower-income borrowers.. In Q1 2025, average non-mortgage debt reached C$21,859, according to Equifax. Rising rates and tighter lending standards are squeezing young Canadians in particular:
- Credit card delinquencies rose 21.7% YoY among those under 35.
- Non-mortgage delinquencies increased 8.9% YoY, outpacing the 6.5% rise among mortgage holders.
Big Bank Balance Sheets
Canada’s Big Five banks — RBC, TD, Scotiabank, BMO, and CIBC — continue to benefit from elevated net interest margins, fueled by higher lending rates across mortgages, credit cards, and business loans. In Q1 2025, these institutions posted robust interest income growth, but also revealed a sharp uptick in loan loss provisions. TD Bank, for instance, set aside over C$1.1 billion in provisions for credit losses — a 34% increase year-over-year — signaling growing concerns over household credit health.
The Office of the Superintendent of Financial Institutions (OSFI) has elevated its tone in recent communications, warning that household debt remains a key systemic vulnerability in Canada’s financial system. In its April 2025 statement, OSFI labeled upcoming mortgage renewals as a “ticking time bomb,” emphasizing that stretched incomes and rising rates could amplify credit risk. The agency urged banks to be proactive in risk assessment and borrower engagement as renewal volumes swell through 2026.
Consumer Sentiment Turns Cautious
The BoC’s Q1 2025 Consumer Expectations Survey reveals that 67% of Canadians expect a recession within the next 12 months, and more than 50% say they’re more likely to miss a debt payment in the near term — both figures marking the highest levels since the Bank began tracking expectations in 2014.
Sentiment around job stability and housing affordability is weakening significantly. Among respondents, nearly 40% reported feeling less confident in their employment situation, and over half indicated growing anxiety about their ability to qualify for new credit. This erosion in consumer sentiment is particularly acute among households earning below C$60,000 annually and those under 35, who face disproportionate exposure to high-interest consumer credit and housing market pressures.
What This Means for You & Your Finances
The credit landscape is shifting, and everyday Canadians are feeling the effects across housing, borrowing, and saving:
- Variable mortgage holders face substantial payment increases. For example, someone with a C$450,000 mortgage could be paying up to C$400/month more than they were two years ago.
- Refinancing is tougher than in previous years. Banks are more risk-averse and scrutinize applications more closely, often offering lower credit limits or higher interest rates.
- Savings accounts and GICs are seeing better returns, with yields now in the 4–5% range. This may offer conservative investors a safer haven, although returns are still just above the inflation line.
- Fintech tools offer convenience, but can encourage fragmented borrowing. Using multiple BNPL platforms or relying on overdraft protection as a budgeting tool can create unintended financial stress.
The cumulative effect is a more cautious, credit-tight environment — where Canadians must balance debt servicing with day-to-day affordability challenges like groceries, gas, and childcare. — those with a C$450,000 mortgage could see up to C$400/month more in payments.
- Refinancing is tougher, with banks applying stricter approval conditions and lower credit limits.
- Savings products are up: GICs now yield 4–5%, offering a low-risk way to hedge against inflation.
- Fintech caution: Platforms like Buy Now Pay Later and instant credit apps can add hidden debt burdens.
Bottom Line
Canada’s banking system is resilient, but households are under stress. The convergence of rate-sensitive renewals, rising consumer debt, and growing delinquencies is a warning sign. As policymakers walk a tightrope between controlling inflation and protecting household stability, Canadians must watch credit usage carefully.
Whether you’re renewing your mortgage, applying for credit, or simply managing a monthly budget — understanding the flow of interest rates, lending standards, and debt risk is more crucial than ever.
Marc has been involved in the Stock Market Media Industry for the last +5 years. After obtaining a college degree in engineering in France, he moved to Canada, where he created Money,eh?, a personal finance website.
