Stick to the Facts
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For years, analysts and policymakers have warned that cooling housing markets in provinces like Ontario and British Columbia could trigger significant mortgage losses for Canada’s largest lenders. But recent data shows those fears have not materialized. Instead, the country’s biggest banks have turned residential mortgages into one of the safest and most profitable segments of their business.
Between November 2025 and January 2026, Canada’s Big Six banks wrote off just $38 million from a combined mortgage portfolio worth $1.76 trillion. Over the past year, total write-offs stood at only $168 million—roughly 0.01 percent of total holdings. These figures highlight an unusually resilient system, even as housing markets face pressure.
Defaults Remain Exceptionally Low
One of the main reasons behind this stability is the extremely low default rate among Canadian borrowers. As of late 2025, only 0.24 percent of mortgage holders were more than 90 days behind on payments.
This is largely due to Canada’s strict lending rules, particularly the mortgage stress test. Borrowers must qualify at interest rates higher than their actual contract rate, ensuring they can still manage payments if rates rise. This built-in buffer has helped prevent widespread financial strain.
There is also a strong incentive for borrowers to avoid default. In Canada, lenders can pursue other assets if a mortgage goes unpaid, which pushes homeowners to prioritize mortgage payments above most other expenses.
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Big Banks Avoid the Riskiest Borrowers
Another key factor is how risk is distributed across the lending market. Canada’s largest banks have consistently stayed away from high-risk segments.
While the national mortgage arrears rate sits at 0.24 percent, the rate for mortgage investment corporations is significantly higher at 2.01 percent. This gap reflects a clear divide in lending practices. The Big Six banks focus on borrowers with stronger credit profiles, leaving riskier lending to smaller or alternative institutions.
Even within the Big Six, differences exist. For example, Scotiabank has reported relatively higher write-offs due to its exposure to international markets in Latin America, where mortgage risks are naturally elevated compared to Canada.
Insurance and Equity Shield the Banks
Canada’s mortgage system is designed to limit lender losses, even in the event of default. Borrowers who put down less than 20 percent are required to carry mortgage insurance, often provided by Canada Mortgage and Housing Corporation. This transfers much of the default risk away from banks.
For homeowners with larger down payments, property equity acts as a buffer. If a borrower defaults, the bank can typically recover the outstanding loan amount through the sale of the property, even after accounting for fees and potential price declines.
Only in extreme scenarios—such as a sharp housing market crash that wipes out most of the home’s equity—would banks face significant losses. Even then, Canadian lending laws allow financial institutions to pursue additional assets from borrowers, further reducing risk.
A System Built for Stability and Profit
Canada’s mortgage framework has proven both stable and durable, even under economic pressure. But what stands out is how effectively the Big Six banks have positioned themselves within it.
By maintaining strict lending standards, avoiding higher-risk borrowers, and relying on structural safeguards like insurance and recourse laws, these institutions have created a near risk-free environment for one of their largest asset classes.
Residential mortgages, once seen as a potential vulnerability, have instead become a cornerstone of consistent and reliable profits for Canada’s banking giants.