Canadian Mortgage Impairments Surge: Homeowner Or Investor Trouble?

Canada’s central bank is warning that mortgage impairments in Canada jumped sharply in the first quarter of 2025. The impaired mortgage rate for major banks rose to 0.43%, up 4 basis points over the quarter and 17 points higher than the lows of 2022. While the rate is still around pre-pandemic levels, the pace of growth is raising concerns. Mortgage impairments have risen 10% in just three months and are up 65% since early 2022.

Even though the overall rate might not seem high, the timing is what worries experts. Mortgage defaults are climbing during a period without a major economic crisis, which is not typical. This means that if a real financial shock were to hit—like a global trade issue or recession—the numbers could rise much faster and cause deeper trouble.

Mid-sized banks are reporting even more mortgage impairments than the big banks. These lenders only hold about $150 billion in mortgages compared to the $4.3 trillion held by major banks, but their clients tend to be higher risk. If their numbers were factored in more fully, national impairment rates could start to look like they did after the 2008 financial crisis.

Mortgage defaults often reflect a lack of cash flow rather than total financial collapse. In Canada, people usually sell their homes before missing payments. But when someone defaults, it likely means they bought recently and haven’t built much equity. Many recent buyers fall into the investor category, not first-time homeowners, which shifts the focus of concern.

Several warning signs suggest investors are more vulnerable now. Lenders have been using bulk appraisals on pre-construction condos—mainly purchased by investors—which may have overestimated values. Mortgage lengths have been stretched from 25 to 30 years, a move meant to help buyers but now mostly helping investors. And government mortgage insurance limits have been raised, allowing riskier, higher-priced loans to get backing.

This setup feels familiar to what happened in the U.S. housing crash. At the time, many blamed low-income buyers, but it turned out over-leveraged investors were the bigger issue. Canada may now be in a similar situation. As mortgage impairments rise, it’s not the typical homeowner under pressure—it may be the investors holding too much debt.