Smaller mortgages historically carried larger delinquency risks in Canada. Not anymore. TransUnion data now shows the largest mortgages falling into arrears at more than double the rate of the smallest. The reversal resembles the unwinding of the US housing bubble, when those with supersized mortgages rapidly cracked.
Canadian Mortgage Risk Is Usually Concentrated At The Bottom
Payment stress is traditionally seen in the smallest mortgages, where borrowers tend to have more modest incomes. In Q3 2022, when all mortgage sizes by originations were at record lows, that pattern held true: sub-$200k mortgages posted the highest delinquency rate at 0.19%, outpacing the $200k-$400k segment by 6 basis points (bps) and dwarfing the largest mortgages. Once rates normalized, that logic fell apart faster than financing for an overvalued Toronto condo pre-sale.
Canada Is Seeing Risk Flip As Speculators Meet Rate Normalization
Through 2022-2023, those with the most debt began to feel the pain. The sub-$200k delinquency rate reached 0.21% by Q4 2023, up 2 basis points (bps) or 10.5% higher than record lows. It may sound small, but this is a seriously sharp rise in the delinquency rate, though it pales in contrast to larger mortgages.
Mortgages $850k or higher also climbed to 0.21% in Q4 2023, up 13 bps or 162.5% higher over the same period, nearly tripling. In other words, those with modest means were behind on payments at the same rate as borrowers whom lenders felt were secure enough to borrow at least 4x more. Except the problem didn’t stop here.
Mo Money, Mo Problems: Canada’s Largest Mortgages See Arrears Surge
Canadian mortgage delinquency rates by size of mortgage at origination.
Source: CMHC; Transunion; Better Dwelling.
The most recent data shows the sub-$200k mortgage borrower delinquency rate reached 0.24% in Q3 2025, adding 3 bps (+14.3%) since Q4 2023. In contrast, the delinquency rate for mortgages at least $850k climbed to 0.52%, up 31 bps (+147.6%) over the same period. Yes, the delinquency rate for large mortgages more than doubled that of small mortgages.
Larger mortgages are a smaller share of total mortgage pools, but they’re also higher impact. An $850k delinquent mortgage is equivalent to more than four $200k mortgages, and they are falling into arrears at a higher rate.
Canadian Mortgage Delinquencies Following US Housing Bubble Pop
The reason behind the trend may be counterintuitive, but it mimics how the US housing bubble played out in 2008. While the narrative is that low-income households defaulted, it was investors using subprime lenders to obtain excess leverage that were the issue. Lower-income borrowers performed as expected, while investors struggled to make payments on their excessive debt.
Canada’s investor-dominated real estate market is now following a similar trajectory. When low rates spurred demand, it didn’t take long for investors to crowd end-users out of the market. During the frenzy, an RBC executive noted that investors were replacing first-time buyers in their portfolio. StatCan data also revealed that 75% of home ownership growth was captured by investors during this period. The frenzy was so wild that over 80% of Toronto’s new housing was being purchased by investors, who are now struggling to close without questionable appraisal math.
The most interesting part of Canada replicating the US housing playbook, however, is the risk transfer scheme. Households have been presented with the narrative that many of these taxpayer-funded schemes are to help low-income buyers struggling to navigate high home prices with credit normalization.
If entry-level buyers are locked out, and the working class isn’t the one defaulting, who are these taxpayer-funded bailout programs meant to save? The data makes it obvious—even if policymakers try to convince households otherwise.
In before someone says “that’s still low compared to the U.S.,” and someone has to explain Canadian a lenders dump you to b lenders before it becomes too severe, allowing them to hide the problem since Canada doesn’t want the public to have real visibility.
Where was it that pointed out the arrears rate at banks are higher than the one reported by the CBA? Lol.
Killer work as always. Only (minor) complaint, keeping with the theme of “writing for normal people,” you should have explained risk inversion. You mention it in the email and finance professionals will underwent this is a rare event, but you didn’t drill that in.
For those unaware, risk inversion is when the base risk assumptions completely collapse. Canada was unlikely to have a financial crisis since risk performed as expected. Now there’s risk inversion, the fundamental needed for it to spark.
This is what happens when policymakers intervene to prevent normal risk from playing out. Much bigger problem that’s going to be even harder to contain.
Underrated comment
Pop dat bubble bay-be!
Nobody cares. Canadians overpay every day.