Canadian mortgage arrears climbed to their highest level in five years in October 2025, according to new data from the Canadian Bankers Association (CBA). At the same time, Canada’s largest banks are holding fewer mortgages overall, a rare contraction that suggests lenders are actively reducing exposure as borrower stress builds.
While headline arrears rates remain low by historical standards, the direction of change and the shrinking size of bank mortgage books point to growing pressure inside the system.
Canadian Mortgage Arrears Reach Highest Level Since 2020
The share of residential mortgages that are at least 90 days in arrears at CBA member banks rose to 0.25% in October 2025, up 4 basis points from a year earlier. This marks the highest arrears rate since September 2020 and pushes delinquency levels above pre-pandemic norms.
On a volume basis, this translates to roughly 12,200 mortgages in serious arrears, representing a 19% increase year over year.
Although the arrears rate remains low in absolute terms, the pace of deterioration matters. Mortgage credit quality is not just worsening compared to last year – it has accelerated meaningfully over the past 18 months, reversing the unusually low delinquency environment created during the pandemic.
Several of Canada’s largest banks also flagged rising delinquency trends in their latest quarterly earnings, reinforcing that this is not isolated to a single institution or region.
Why Mortgage Arrears Matter Even When Rates Look Small
Mortgage arrears data often looks benign at first glance because Canada historically maintains low default rates. However, small changes can signal much larger underlying stress when viewed in context.
A nearly 20% annual increase in arrears suggests that higher interest rates, renewal shock, and stretched household budgets are beginning to show up in payment behavior. This matters most as more borrowers face renewals at rates well above what they locked in during 2020 and 2021.
Canadian Banks Are Holding Fewer Mortgages Than Last Year
At the same time arrears are rising, banks are quietly shrinking their mortgage exposure.
CBA data shows that member banks held approximately 4.97 million residential mortgages in October 2025, down 0.9% from a year earlier. This marks the longest period of annual contraction on record, with mortgage growth turning negative in April 2023 and remaining so through 2025.
Historically, Canada’s bank mortgage books tend to grow steadily, even during periods of slower housing activity. Sustained contraction is rare and suggests active balance sheet management rather than weak demand alone.
What Is Driving the Mortgage Book Contraction?
The decline in bank-held mortgages does not mean Canadians are suddenly borrowing less. Instead, it reflects a shift in where mortgages are being held.
A growing share of borrowers are migrating to non-bank lenders, including monoline lenders, credit unions, and private lenders. In some cases, high-quality borrowers move to monoline lenders for competitive rates. In other cases, riskier borrowers are effectively pushed out of bank balance sheets as part of risk mitigation.
Banks can reduce exposure through:
- Non-renewal of higher-risk borrowers
- Selling non-performing loans to B-lenders
- Tightening underwriting standards at renewal
These borrowers often end up with alternative or private lenders, which now account for up to 15% of the mortgage market and typically carry much higher delinquency rates, sometimes exceeding 5%.
This shift means rising stress may not fully appear in bank arrears data, understating the true level of pressure in the broader mortgage market.
Why Rising Arrears and Shrinking Books Are a Risky Combination
When banks hold fewer mortgages, each delinquency carries more weight. A shrinking denominator amplifies the impact of rising arrears and limits the system’s ability to absorb shocks.
The trend also raises questions about how resilient the market will be as:
- More mortgages renew at higher rates in 2026
- Investor cash flow remains strained
- Private lending continues to expand
While this does not signal an imminent housing crash, it does point to a more fragile credit environment than headline figures alone suggest.
Key Takeaways for Buyers, Owners, and Investors
- Mortgage arrears are rising faster than headlines imply, even if absolute levels remain low
- Canada’s largest banks are actively reducing mortgage exposure, a rare and notable shift
- Risk is increasingly moving outside the traditional banking system into private and non-bank lending
- Credit stress is likely to remain a key theme heading into 2026, especially around renewals
References
Better Dwelling. (2025). Canadian mortgage arrears hit a 5-year high as banks shrink books. https://betterdwelling.com
Canadian Bankers Association. (2025). Mortgage arrears and residential mortgage data. https://cba.ca
Statistics Canada. (2025). Household credit and debt indicators. https://www.statcan.gc.ca
Canada Housing Market 
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