The majority of mortgage holders, however, will not see payment resets until 2025 and 2026, resulting in a payment increase of approximately 40% based on the current expected path of interest rates.

Moreover, resetting past fixed-rate mortgages will gradually lead to payments that are 10% to 25% higher over the next few years.

These characteristics of the Canadian mortgage market have played a crucial role in mitigating early damage from the tightening cycle, preventing immediate payment shocks and forced selling in the housing market.

It also granted households and the economy time to adjust to higher rates. By 2025 and 2026, various factors, including potential interest rate decreases and years of income growth, could help temper the surge in debt service ratios, Kavcic said.

“As we have long argued since the tightening cycle began, the mortgage market is not a time bomb, but more of a persistent headwind that will blow for a few years going forward,” he added. “We’re already seeing the proof of that on the ground, although the path of the job market will certainly dictate the ultimate outcome.”