A wave of mortgage defaults in Canada has spread to the middle class
Homeowners with stronger credit scores are increasingly defaulting on their mortgage payments — an alarming trend that reveals the impact of higher mortgage rates on traditionally lower-risk borrowers. Equifax data shows the “severe payment shock” is actively spreading from subprime into the established middle class.
The Credit Score Breakdown: Who’s Defaulting?
New data from Equifax Canada show defaults growing not only for the weakest subprime borrowers, but also for more financially stable homeowners with credit scores in the 621 to 680 range — the middle-tiered “near-prime” group. Equifax’s credit scores are rated on a scale from 320 through 880, with prime borrowers above 660 and the weakest below 580.
Across the country, the near-prime delinquency rate increased by 31% from Q4 2024 to Q4 2025 — an even faster pace than the weakest subprime borrowers (23% and 28%). The national delinquency rate across all borrowers was 0.26% at the end of last year.
“There is an alarming acceleration of financial stress that is rapidly expanding to more creditworthy borrowers. Severe payment shock is actively spreading from subprime borrowers into the established middle class.”
The Ground Zero: Toronto & Vancouver Lead the Surge
Homeowners in the priciest real estate markets are under the greatest stress. In Toronto, Vancouver, Brampton, Markham and Oshawa, delinquency rates have increased for every type of mortgage borrower.
The near-prime delinquency rate in these five markets jumped 55.6% year-over-year — nearly double the national average for this group. Kathy Catsiliras, Equifax Canada’s VP of analytical consulting, explains: “Having a good credit profile does not necessarily mean a customer has a lot of extra cash to handle higher mortgage payments. Savings are depleting because they’re just trying to keep up.”
Nearly two-thirds of near-prime homeowners took out loans from Canada’s five largest banks, according to Equifax. The rest got their mortgages from other lenders — meaning the risk is concentrated in the core of the financial system.
The Jumbo Loan Problem: Mortgages Over $800K
The Equifax data show that homeowners with the largest mortgages — home loans greater than $800,000 — are having more trouble making their payments. In Ontario and British Columbia, the delinquency rate on super-large loans increased by:
“Higher interest rates on a large mortgage can result in a significant jump in monthly payments,” Catsiliras said. Today, the popular five-year fixed rate mortgage is being advertised in the 3.6% to 4% range — still far above the sub-2% rates during the pandemic real estate boom.
“Nobody’s excluded. Savings are depleting because they’re just trying to keep up, trying to stay current, trying to stay on top of payments. So distress is really coming through.”
— Kathy Catsiliras, Vice-President of Analytical Consulting, Equifax Canada
The Big Picture: Delinquency Trends by Region
While the rate of delinquencies has climbed, the overall level remains low for near-prime and above borrowers. However, the trajectory is what concerns economists. A 31% year-over-year increase in near-prime defaults signals that financial stress is broadening — not narrowing.
*Toronto, Vancouver, Brampton, Markham, Oshawa combined
The 31% surge in near-prime delinquencies is a canary in the coal mine for Canadian housing. This group (credit scores 621-680) represents the “established middle class” — households that survived the initial rate shock but are now depleting savings at an accelerating rate. The 55.6% spike in Toronto-Vancouver markets suggests geographic concentration of risk.
Two-thirds of these loans held by Big 5 banks creates systemic exposure. While absolute delinquency rates remain low (0.44% nationally), the rate of change is what matters for early warning. If this trajectory continues, expect broader credit tightening and accelerated forced selling in late 2026.
- Check your renewal date — If your mortgage renews in 2026, calculate your new payment at 4% (not the advertised teaser rate)
- Monitor your credit score — Equifax data shows payment shock hits before score deteriorates; don’t wait for the delinquency to appear
- Toronto/Vancouver owners with $800K+ mortgages — You are in the highest-risk cohort; build a 6-month payment buffer
- Near-prime borrowers (621-680) — You are the fastest-growing delinquency group; contact your lender now to discuss options
Sources: Equifax Canada, CMHC. Data represents Q4 2024 to Q4 2025 comparisons unless otherwise noted.
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