In the latter part of 2025, Canadian mortgage borrowers largely held back from taking on new debt or refinancing, reflecting how elevated interest rates continued to temper housing demand and influence household financial decisions. Rather than rushing into the market, many prospective buyers and existing homeowners opted to delay borrowing plans, waiting for clearer signals on the future path of interest rates and more affordable borrowing costs.

This cautious stance among borrowers was evident in the most recent credit and mortgage data, which showed that growth in new mortgage balances remained subdued. After a period of elevated activity during earlier phases of market normalization, demand for new loans eased as buyers contended with high borrowing costs and limited incentives to expand housing debt at current rate levels. As a result, lenders recorded slower increases in outstanding mortgage volumes compared with historical norms.

One of the key drivers of this trend was the persistent stickiness of interest rates. Although inflation moderated from earlier highs, central banks kept policy rates relatively high to reinforce price stability and prevent a resurgence of inflationary pressures. In the context of this monetary policy environment, borrowing costs stayed unattractive for many buyers, particularly first-time purchasers who are more sensitive to monthly payment increases. The reluctance to lock in high-cost financing meant fewer new mortgage originations and lower refinancing volumes overall.

Another factor influencing borrower behaviour was uncertainty around future rate adjustments. Many households expressed reluctance to commit to long-term debt when forecasts for interest rates remained uncertain. Some homeowners waiting to refinance chose to hold existing mortgages until there was greater confidence about rate cuts or longer periods of stable pricing. This “wait-and-see” mindset helped explain why mortgage growth decelerated even as broader economic indicators showed resilience in employment and consumer spending.

At the same time, the housing market itself remained relatively balanced. Home price growth slowed across many regions, and transactions were more muted compared with historical peaks. Limited movement in property values, combined with subdued borrowing activity, contributed to a less overheated market dynamic — one where buyers and sellers were both taking careful, measured approaches to engagement.

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The subdued borrowing trend also had implications for financial institutions. Banks and mortgage lenders saw lower pressure to expand credit portfolios, and risk management priorities reaffirmed cautious underwriting standards. With slower growth in new mortgages, lenders focused on portfolio quality and credit risk controls rather than aggressive expansion into new loan originations.

Looking ahead, economists anticipate that a shift in monetary policy — particularly if interest rates are cut — could rekindle mortgage borrowing activity. Reduced borrowing costs would likely encourage first-time buyers and homeowners seeking to refinance existing loans, potentially boosting mortgage volumes and housing market participation. Until then, however, elevated rates are expected to keep many Canadians on the sidelines, balancing housing aspirations with prudent financial planning.

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In summary, elevated interest rates and uncertainty about future rate moves led Canadian mortgage borrowers to delay new borrowing and refinancing, resulting in subdued growth in outstanding mortgage debt as households awaited clearer signals on the cost of credit. This cautious approach has helped moderate activity in the housing finance market entering the new year.