Borrowers in regions where home values have taken big hits may find refinancing tougher in the new year
Lenders have grown surprisingly aggressive with their renewal pricing. Well-qualified borrowers who have paid as agreed can expect widespread renewal rate matching in 2026.
The new year brings fresh possibilities for mortgage shoppers. After painfully analyzing my artisanal tea leaves, here are five semi-safe predictions on what this year might serve up.
Flat-ish rates
Canada’s economy is still upright, doing its best to deal with the United States’ assault on free trade. Borrowing costs this year are essentially hostage to whatever happens during the Canada-United States-Mexico Agreement (CUSMA) negotiations. A Donald Trump threat to tear up the agreement could spook yields and, hence, mortgage rates, temporarily lower.
Most economists think the Bank of Canada will sit on rates for most of the year, with a possible hike reserved for the fourth quarter. The bond market is pricing in a 50/50 chance of tightening by year-end and almost no chance of a cut.
The other large question mark is how markets will respond to Trump’s new “yes man” chair of the U.S. Federal Reserve. If the Fed pushes short-term rates lower despite lingering inflation threats (bet on it), markets will revolt by adding a credibility premium to long-term bond yields. That could push up U.S. yields and take Canadian rates higher in sympathy.
Naturally, some unforeseen catastrophe that drives rates lower remains a possibility this year.
Pro tip: If Canada and the U.S. make up and a workable trade deal seems likely, economic growth could pick up again and exacerbate inflationary pressures. Many will then choose variable rates as rising bond yields make floating rates cheaper by comparison. Don’t be one of them. Lock in at least a portion via a hybrid mortgage, but don’t go all variable unless you absolutely need the flexibility.
Record renewals?
Almost one-third of mortgages will be up for renewal in 2026.
Across insured and uninsured borrowers with five-year fixed or variable mortgages, the average rate jumped to 3.84 per cent this year from about 1.77 per cent in 2021, based on data compiled by MortgageLogic.news.
That’s more than double the rate, translating into a payment increase of roughly $105 per month for every $100,000 borrowed.
Mind you, this is less pain than the renewal-shock forecasts being tossed around two years ago. That’s mainly because rates cooled off after their 2023 peak, incomes climbed and borrowers leaned on amortization extensions and lump-sum paydowns.
Delinquencies will edge higher, but 90-day arrears will stay below the 30-year average of 0.33 per cent. As a result, there will be no national default crisis — far from it — as Canadians would rather eat cold beans than lose their front door.
Happily, lenders have grown surprisingly aggressive with their renewal pricing. Well-qualified borrowers who have paid as agreed can expect widespread renewal rate matching.
Pro tip: Check the Financial Post’s daily mortgage rate table to see which lenders are currently the least greedy. Then, if you’re content with your current lender, tell them to match those rates or you’re taking your business elsewhere. Don’t forget that if you have an insured mortgage, be sure to check the “Insured” table. If you’re refinancing to pull money out, increase your loan amount or extend your amortization, use the “Uninsured” rate table.
OSFI scraps the stress test
If I were setting odds on the banking regulator ending the federal mortgage stress test for most prime mortgages, I’d put it at better than a coin flip.
Office of the Superintendent of Financial Institutions head Peter Routledge has already praised the regulator’s loan-to-income (LTI) limit, saying, “So far, we like what we are seeing.”
Moreover, policymakers have already scrapped the stress test for straight switches. So far, anecdotal evidence suggests the change has nudged banks to sharpen pricing to keep renewal customers from wandering off.
Stress test or not, borrowers in regions where home values have taken bigger hits may find refinancing tougher in 2026 as higher rates collide with less home equity.
Mortgage affordability will improve (slightly)
The recipe for mortgage affordability includes:
One part lower rates, at least when compared with the 2023 to 2024 era;
One part higher rental vacancy rates —which lowers rents and shifts demand from buyers — courtesy of record rental construction and slower population growth;
A dash of lower home values, especially when set against the 2021-to-2022 pricing fever;
A healthy scoop of longer amortizations, with most borrowers opting for 30-year schedules when they’re allowed to;
Equal parts rising incomes, averaging roughly three per cent to four per cent a year;
In battered markets — such as Toronto’s high-rise sector — 2026 could bring capitulation, driving prices even lower. That, combined with the other factors above, could hand first-time buyers their best shot at affordability in years, especially if square footage is not high on their wish lists.
AI incursion
Artificial intelligence (AI) is changing everything, and mortgages are predictably next.
This year will see lenders scramble to implement AI underwriting, setting the stage for faster, fully automated mortgage approvals.
“Time to funding” will become a key competitive differentiator. Nimble online competitors such as Pine Canada Financial Corp. and Nesto Inc. will launch instant approvals in 2026 and then use AI to verify income and validate documents, thus stealing market share from those relying on manual adjudication.
AI will also rein in mortgage fraud since robotic document analysis makes spotting forgeries and inconsistencies far less sporting.
Now, if the Canada Revenue Agency ever stops dragging its feet and launches automated online income validation, it would easily rank as the biggest mortgage win of the year.
Courtesy Robert McLister a mortgage strategist and editor of MortgageLogic.news. and the Calgary Herald
