OSFI flags mortgage arrears risk

Canada’s banking regulator now expects more homeowners to fall behind on mortgage payments over the next two years as loans renew into higher borrowing costs. (osfi-bsif.gc.ca) The Office of the Superintendent of Financial Institutions, or OSFI, published that warning in its 2026-2027 Annual Risk Outlook on April 14, 2026. It listed real estate secured lending, non-bank financial institution exposure, and liquidity and funding as this year’s top risks for federally regulated lenders. (osfi-bsif.gc.ca) OSFI said housing and mortgage pressure has increased in some parts of Canada, while global trade and geopolitical shocks are adding strain to the economy and funding markets. The agency said risks outside traditional banking have expanded as non-bank lenders and investment funds take on more borrowing. (osfi-bsif.gc.ca) A mortgage arrear is a missed payment that has gone overdue. OSFI’s concern is that borrower stress can hit banks directly through loan losses and indirectly through the funding system that helps finance mortgages. (bankofcanada.ca) The timing matters because a large share of Canadian mortgages is still rolling over from the low-rate era into much higher payments. Bank of Canada staff said about 60% of outstanding mortgages were expected to renew in 2025 or 2026, and about 60% of those renewing were expected to see a payment increase. (bankofcanada.ca) Using December 2024 payments as a baseline, Bank of Canada staff estimated the average monthly payment could be 10% higher for borrowers renewing in 2025 and 6% higher for those renewing in 2026. For five-year fixed mortgages renewing in those years, the average increase could run about 15% to 20%. (bankofcanada.ca) Stress is already showing up unevenly across the country. Equifax Canada said more than 11,000 Ontario mortgages recorded a missed payment in the fourth quarter of 2024, nearly triple the number in 2022, and the province’s 90-plus-day mortgage delinquency rate rose to 0.22%. (equifax.ca) OSFI’s broader warning is about financial plumbing: the less visible pipes that move credit and cash through the system. The regulator said non-bank financial institution risk returned to its top tier this year because private credit funds, non-bank lenders, and other market-based financing channels can amplify stress when confidence or liquidity weakens. (osfi-bsif.gc.ca) That is a shift from last year’s list of top risks, which included integrity and security, wholesale credit, funding and liquidity, and real estate secured lending and mortgage risk. In its October 2025 semi-annual update, OSFI said tariff discussions, rising unemployment, and continued housing pressure had already changed the risk backdrop. (osfi-bsif.gc.ca 1) (osfi-bsif.gc.ca 2) OSFI said it is developing a new Credit Risk Management guideline, with comments due by July 29, 2026, and changes to some liquidity rules take effect May 1, 2026. The regulator also said risk weights on some assets may rise over time as it recalibrates bank capital to match the new risk mix. (osfi-bsif.gc.ca) For borrowers, the immediate issue is still the monthly payment. For regulators, the test is whether rising arrears stay contained to households or start to spread through lenders, investors, and funding markets. (osfi-bsif.gc.ca)