Canadian consumer debt jumps amid climbing mortgage originations

Canadians are taking on more credit amid falling interest rates, with total consumer debt climbing to $2.6 trillion in the third quarter of 2025.

For mortgage professionals, the headline trend masks a more complex reality: borrowers are making calculated moves to manage affordability, while lenders face an increasingly fragmented market where some consumers thrive while others struggle.

Mortgage originations jumped 18% year-over-year, fueled by both refinancing activity and earlier renewals. But what matters most is how borrowers are behaving.

"In today's elevated interest rate environment, consumers are potentially tempted to opt for shorter-term mortgages to optimize for renewal at favorably lower rates," said Matt Fabian, director of financial services research and consulting at TransUnion Canada.

"Lenders will need to watch out for shifts in market share and adjust retention strategies in order to maintain a strong customer base as consumers shop around for more affordable rates."

Borrowers are shifting to shorter one- and three-year terms, betting on lower rates when they renew. Average new mortgage loan amounts increased 4.1% to $359,623, driven largely by continued affordability pressures in Toronto and Vancouver.

However, Quebec City, Montreal and Saskatoon showed the sharpest growth in average mortgage sizes, suggesting pent-up demand in secondary markets.

The delinquency divide

While mortgage delinquency rates remain near historic lows at 0.26%, a troubling divide is emerging elsewhere.

Early-stage delinquencies fell, but late-stage delinquencies rose 4 basis points year-over-year to 1.77%. This divergence reveals widening financial inequality. 

Regional disparities underscore this split. Alberta's delinquency rate spiked 10 basis points to 2.31%, the highest nationally, driven by rising unemployment.

Ontario climbed 6 basis points to 1.90% as manufacturing slowdowns and tariff impacts ripple through the province. Quebec edged up 5 basis points to 1.26%, signaling emerging stress from United States trade pressures.

Meawhile, Canada’s national mortgage delinquency rate fell for the first time in three years in Q2 2025, dropping to 0.22%, according to the latest Residential Mortgage Industry Report (RMIR) from Canada Mortgage and Housing Corporation (CMHC).

While the national picture improved, Ontario and British Columbia continued to see rising delinquencies. Ontario’s mortgage delinquency rate climbed to 0.23%, overtaking the national average for the first time since at least 2012. British Columbia also saw its delinquency rate rise from 0.16% to 0.19% over the same period.

Market implications

For lenders, the churn presents both opportunity and risk. Lower rates attract deal-shopping borrowers, but retention requires competitive pricing and agile strategies. Meanwhile, the consumer credit indicator fell 6 points compared to the prior year, suggesting underlying weakness beneath the surface growth.

The mortgage market's resilience masks a credit system under strain in pockets across Canada, particularly in goods-producing regions. Professionals should prepare for heightened competition and closer monitoring of regional credit trends.

Source CMP
By Liezel Once