Many Canadians are facing payment shocks at mortgage renewal due to shorter mortgage terms. This has raised concerns about financial stability and led to a debate about whether adopting longer mortgage terms, similar to those in the United States, would be a viable solution. Currently, 76% of outstanding mortgages in Canada are expected to come up for renewal by the end of 2026, which could result in a rise in mortgage delinquencies. Mortgage delinquencies and defaults are expected to continue trending upwards as homeowners face mortgage renewals in 2025 and 2026. Canada’s banking regulator recently named mortgage renewal as one of the top financial risks facing the country [4adc4f35]. The six major banks are bracing for more defaults, setting aside $4.36 billion in provisions for credit losses in the second quarter of 2024 — an increase of $1.6 billion from the same time last year. The fallout from the mortgage crisis won't end with homeowners facing financial hardship. As more homeowners default, the banks will be forced to put more capital aside to cover bad loans, creating the risk of a shock to the lending system. This could lead to a credit crunch and a decline in lending activity, which could slow down the economy and potentially lead to a recession [4adc4f35]. The train wreck might happen in 2026, however, the train heading for the wreck has already left the station. Canada already has the third-highest household debt in the world and as it becomes harder for people to access credit from the banks, the economy could slow. Businesses will cut back on operations and trim their workforce while households spend less, unable to borrow more to make ends meet. Mortgage renewals are seen as a top risk by the Ontario Superintendent of Financial Institutions (OSFI), with around 73% of mortgages set to renew by the end of 2026. Homeowners who took out mortgages in 2020 to 2022 are most at risk, especially those with variable-rate fixed-payment mortgages. The high cost of housing in Ontario means homeowners are saddled with sizable mortgages, resulting in a higher value of the outstanding debt [4adc4f35]. The major banks in Canada are putting aside more funds in preparation for a wave of loan defaults, which could lead to a credit crunch and reduced credit availability. However, experts believe that a widespread banking crisis is unlikely as the major banks are well capitalized. The Bank of Canada has begun its rate-cutting cycle, which could help prevent a surge of defaults. While there are cracks in the financial system, a recession is not guaranteed, but indicators point toward hard times for Canadian households due to severe household debt burdens and declining household spending. The major banks are being prudent in setting aside loan-loss contingencies, but there is still uncertainty in the economy in terms of employment, household debt, and bankruptcies. The financial system remains resilient, but the situation will be monitored by the Ontario Superintendent of Financial Institutions until at least 2026 [4adc4f35].