The Canadian real estate market is a dynamic and ever-evolving entity, particularly when it comes to residential mortgage financing. As we move through 2025 and look ahead to 2026, prospective homebuyers and current homeowners alike are facing a landscape shaped by shifting economic conditions, interest rate fluctuations, and evolving lending practices. Understanding the nuances of a residential mortgage is crucial for making informed financial decisions. This detailed guide will delve into the current state of the Canadian residential mortgage market, offering insights into key trends, answering pressing questions, and providing valuable data to empower your homeownership journey. Securing a sound residential mortgage is the most significant financial decision for many Canadians, and being well-informed is your best advantage.
The Canadian Residential Mortgage Market: A Shifting Horizon
The Canadian residential mortgage market is currently experiencing a period of recalibration after years of rapid growth and subsequent adjustments. Lenders are responding to both global economic shifts and domestic factors, creating a unique environment for those seeking a residential mortgage. Recent data from major Canadian banks, such as TD Bank, indicates a softer trend in residential mortgage originations. In Q2 2025, TD Bank reported a decline in its Canadian residential mortgage portfolio, reflecting ongoing pressures on homebuying activity. Elevated interest rates, increasing housing inventory, and a cautious consumer sentiment are all contributing to this moderation in the residential mortgage sector.
Sona Mehta, Group Head of Canadian Personal Banking at TD, noted that while a stronger spring market was anticipated earlier in the year, “a lot has changed in the last four months.” This sentiment underscores the unpredictable nature of the market and the importance of staying updated on residential mortgage trends. Despite these macro headwinds, TD has observed strength in its proprietary channels, with both branch and Mobile Mortgage Specialist (MMS) originations showing double-digit year-over-year growth. This highlights the value of personalized guidance when securing a residential mortgage.
A significant factor influencing the residential mortgage market is the large number of existing mortgages scheduled for renewal. TD data reveals that approximately $144 billion in amortizing mortgage balances—about 40% of its total book—are set to renew by the end of 2026. This includes $36.2 billion in the latter half of 2025 and a substantial $108 billion in 2026. The majority of these are fixed-rate loans that will likely renew at higher interest rates than their original terms, posing a challenge for many homeowners and impacting their residential mortgage payments.
Understanding Mortgage Rates and Renewals in Canada
The interest rate environment is arguably the most impactful factor on a residential mortgage. The Bank of Canada’s monetary policy plays a pivotal role in setting the benchmark for both fixed and variable residential mortgage rates. While the past few years have seen aggressive rate hikes to combat inflation, current forecasts suggest a period of greater stability, with potential for modest rate cuts.
For those with a residential mortgage renewing in the coming months or years, understanding the implications of higher rates is critical. Many homeowners who secured ultra-low rates during the pandemic will face considerable payment increases. While anticipated lower interest rates in late 2025 and 2026 may offer some relief, they may not fully offset the higher financing costs. This emphasizes the need for proactive financial planning and exploring all options for your residential mortgage renewal.
When considering a residential mortgage, it’s also important to differentiate between fixed and variable rates. Fixed-rate residential mortgages offer payment stability over the term, protecting borrowers from rate increases but potentially missing out on decreases. Variable-rate residential mortgages, tied to the prime lending rate, can offer lower initial rates and benefit from rate cuts, but come with the risk of increased payments if rates rise. The choice depends on individual risk tolerance and market outlook.
The Role of Credit Quality and Risk Assessment in Residential Mortgages
Lenders in Canada, including major institutions like TD Bank, are keenly focused on credit quality when assessing residential mortgage applications. Even amidst a softer market, the emphasis remains on securing profitable and high-quality business. TD’s Q2 2025 results showed signs of stabilizing credit performance, with impaired provisions for credit losses (PCLs) declining. This suggests a robust approach to risk management within the residential mortgage portfolio.
Chief Risk Officer Ajai Bambawale highlighted “good credit quality” across the bank’s lending book, noting that lower interest rates have helped borrowers. This indicates that while the market is adjusting, the underlying strength of borrower profiles is generally holding up. Understanding your credit score and ensuring a strong financial position are paramount for securing a favorable residential mortgage in Canada.
TD Bank’s Canadian Residential Mortgage Portfolio Evolution (2024-2025)
| Metric | Q2 2024 | Q1 2025 | Q2 2025 |
| Residential Mortgage Portfolio | $266.4B | $270.5B | $267.4B |
| HELOC Portfolio | $119.2B | $124.2B | $128.6B |
| Percentage of Mortgage Portfolio Uninsured | 83% | 84% | 85% |
| Avg. Loan-to-Value (LTV) of Uninsured Book | 53% | 53% | 54% |
| Portfolio Mix: Percentage with Variable Rates | 34% | 36% | 38% |
| % of Mortgages Renewing in Next 12 Months | 9% | 59% | 59% |
| Canadian Banking Gross Impaired Loans | 0.15% | 0.19% | 0.18% |
| Canadian Banking Net Interest Margin (NIM) | 2.84% | 2.81% | 2.82% |
| Total Provisions for Credit Losses | $1.07B | $1.109B | $622M |
| CET1 Ratio | 13.4% | 13.1% | 14.9% |
Source: TD Bank Q2 Investor Presentation
This data clearly illustrates the recent trend in TD’s residential mortgage portfolio, showing a slight contraction in Q2 2025. It also highlights the increasing proportion of variable-rate mortgages and the significant volume of renewals on the horizon, underlining the critical considerations for anyone with a residential mortgage.
Unpacking the Differences: Residential vs. Commercial Mortgages
A common question that arises for individuals and businesses is the distinction between residential and commercial mortgages, and whether one can be used for the other. This area often causes confusion, especially for those venturing into mixed-use properties or considering how their business might intersect with their personal homeownership.
Are commercial mortgage rates higher than residential?
Generally, yes, commercial mortgage rates are higher than residential mortgage rates in Canada. This difference stems from several factors. Commercial properties are often perceived as carrying a higher risk due to their income-generating nature, which can be subject to market fluctuations, economic downturns affecting businesses, and tenant vacancies. Unlike a residential mortgage where the primary focus is the individual borrower’s income and creditworthiness, commercial lenders also heavily scrutinize the property’s income potential and the business’s financial health.
Furthermore, commercial mortgages typically have lower loan-to-value (LTV) ratios, meaning a larger down payment is required from the borrower, and shorter amortization periods compared to residential mortgage loans. The underwriting process for commercial mortgages is also more complex, involving a deeper assessment of business financials, property income, and metrics like the Debt Service Coverage Ratio (DSCR), which measures a property’s ability to generate enough income to cover its mortgage payments. These factors collectively contribute to the higher interest rates and more stringent terms associated with commercial mortgages.
Can a business get a residential mortgage?
Generally, no, a business cannot directly get a residential mortgage in the traditional sense. A residential mortgage is specifically designed for individuals purchasing a primary residence or a multi-unit property with up to four units for personal use or residential rental income. The qualification criteria for a residential mortgage heavily rely on the individual’s personal credit score, income stability, and debt-to-income ratios.
While a business owner can obtain a residential mortgage for their personal home, the process involves a unique set of considerations. Lenders will assess the business owner’s personal financial health, often requiring two to three years of business financial statements and tax returns to verify stable income. The business structure (e.g., incorporated vs. sole proprietorship) can also influence the lender’s assessment. However, the mortgage would still be in the individual’s name, not the business entity itself, for the purpose of a primary residence.
Can I get a residential mortgage on a commercial property?
No, you cannot get a residential mortgage on a commercial property. The fundamental difference lies in the property’s intended use and the associated risk profile. Commercial properties, such as office buildings, retail spaces, or industrial units, are financed through commercial mortgages, which have distinct underwriting criteria, terms, and interest rates, as discussed above.
However, there’s a nuance with “mixed-use properties,” which combine both residential and commercial spaces (e.g., apartments above ground-floor retail). In such cases, specialized “mixed-use mortgages” are available. These mortgages are structured to account for both the residential and commercial components, and their terms, including down payment requirements, often fall between those of pure residential mortgage and commercial loans, typically ranging from 20% to 35% down payment. The lender will assess both the income-generating potential of the commercial units and the residential aspect. So, while a direct residential mortgage on a purely commercial property is not possible, specific financing exists for hybrid properties.
The Growth of Residential Mortgage-Backed Securities (RMBS) in Canada
Beyond individual mortgages, the Canadian financial landscape also includes the significant role of residential mortgage backed securities (RMBS). These financial instruments are created by pooling together a large number of residential mortgage loans and then selling shares of these pools to investors. This process, known as securitization, allows lenders to free up capital, which they can then use to issue more residential mortgage loans, thereby increasing liquidity in the housing market.
In Canada, residential mortgage backed securities are primarily issued and guaranteed by the Canada Mortgage and Housing Corporation (CMHC), a government-owned corporation. This government backing makes Canadian RMBS, often referred to as NHA Mortgage-Backed Securities (NHA MBS) or Canada Mortgage Bonds (CMBs), highly attractive to investors due to their perceived low risk. Investors in these residential mortgage securities receive regular payments derived from the principal and interest payments made by the underlying homeowners.
The existence of a robust market for residential mortgage backed securities is crucial for the stability and efficiency of the Canadian residential mortgage market. It provides a reliable funding source for lenders, ultimately contributing to a more competitive environment for borrowers seeking a residential mortgage. While the intricacies of residential mortgage securities may seem distant from an individual’s homebuying journey, their presence indirectly impacts the availability and pricing of residential mortgage products across the country.
Forecasts and Considerations for Your Residential Mortgage
The Canadian housing market in 2025 and 2026 is expected to see a measured rebound, rather than a rapid acceleration. Forecasts from organizations like the Canadian Real Estate Association (CREA) suggest a slow but consistent period of development, with regional variations. While national average home prices might see slight fluctuations, the overall trend is towards stabilization. This suggests that the current environment, while challenging for some, also presents opportunities for careful planning around your residential mortgage.
Factors such as immigration patterns and supply chain issues impacting housing supply will continue to influence demand and pricing. For those looking to secure a new residential mortgage or renew an existing one, staying informed about these broader market dynamics is as important as understanding individual lending criteria.
The key takeaway for any Canadian navigating the residential mortgage market is the importance of due diligence. This means:
- Understanding Your Financial Position: A clear picture of your income, credit score, and debt-to-income ratio is paramount before approaching any lender for a residential mortgage.
- Exploring All Options: Don’t settle for the first residential mortgage offer. Research different lenders, compare rates, and consider both fixed and variable terms.
- Seeking Expert Advice: Mortgage professionals can provide invaluable guidance, helping you navigate complex applications and find the most suitable residential mortgage products for your specific needs.
- Planning for Renewals: If you have an existing residential mortgage nearing its renewal date, start planning well in advance to mitigate the impact of potential rate increases.
Securing Your Future with the Right Residential Mortgage
The Canadian residential mortgage market, while experiencing a period of adjustment, remains a vital pathway to homeownership for millions. From the subtle shifts in lender portfolios to the broader implications of residential mortgage backed securities, every element plays a role in shaping the financial landscape for Canadians. Understanding the distinctions between residential mortgage and commercial lending, acknowledging the likely trajectory of interest rates, and preparing for future renewals are all critical steps in ensuring a stable and secure financial future. While uncertainty can weigh on buyer sentiment, informed decisions and strategic planning, coupled with expert guidance, can transform challenges into opportunities. Your residential mortgage is more than just a loan; it’s a cornerstone of your financial well-being, and a thoughtful approach will serve you well.
Take the Next Step with Pegasus Mortgage Lending
Ready to navigate the Canadian residential mortgage market with confidence? At Pegasus Mortgage Lending, we offer expert guidance, fast approvals, and personalized solutions tailored to your unique needs. Whether you’re a first-time homebuyer, looking to refinance, or seeking to consolidate debt, our experienced team is here to help you achieve your homeownership dreams.
