Posted on
October 20, 2025
by
Michael Jakobczak
A debt story worth watching
In Canada today, the household‐debt picture is shifting in a way that should get our attention. According to recent data from Statistics Canada, total household debt grew to about $3.13 trillion in August, up roughly 4.45 % year-over-year. But what’s more striking is how much of that debt is tied to mortgages: the outstanding mortgage debt is about $2.33 trillion, up ~4.75 % from last year. Better Dwelling
What that means in simple terms: of every dollar that Canadian households owe, a record ~74.5 cents is mortgage debt.
That concentration is important. It suggests that Canadian households are more heavily exposed to housing (and housing credit) than ever before—and that, in turn, raises both household‐level and systemic risks.
Digging into the numbers
Let’s unpack the primary data points from the article:
Total household credit stands at about $3.13 trillion (August 2025), with ~0.48 % growth from the previous month. Better Dwelling
Mortgage debt: roughly $2.33 trillion, up ~0.50 % from the previous month and ~4.75 % year-over-year.
The share of mortgages in total household debt has reached ~74.5 %—the highest on record. Better Dwelling
In the past decade the share has climbed ~7.5 percentage points. The 70 % threshold was only broken in March 2020, and it wasn’t even this high during the peak of Canada’s previous major credit cycle in the 1990s. Better Dwelling
In other words: while the growth rate of borrowing is not exploding (in fact, some moderation is present), the composition of borrowing is shifting toward mortgages much more strongly than other forms of credit (e.g., consumer loans, credit cards, etc.).
Why is this a concern? Because a heavily mortgage‐loaded household owes money on something that is illiquid, interest‐rate sensitive, and not easily “cut back” in a downturn. And when many households are simultaneously exposed this way, the ripple effects can affect the broader economy.
Why this matters – the risks
1. Interest rate sensitivity & asset price risk
Mortgages are very sensitive to interest rates. When rates rise, monthly payments for new borrowers go up; for variable-rate or renewals, costs can rise. If many households are stretched, higher rates may trigger stress.
At the same time, housing is illiquid. If asset prices fall (or growth stalls), homeowners may see net worth erosion, and if they can’t move easily or liquidate, that becomes a drag on consumption and economic mobility. The article frames it as: “households can’t cut back” when it comes to mortgage obligations. Better Dwelling
2. Concentration risk
When ~75 % of household debt is in mortgages, that means many other forms of credit (which might be more discretionary, like auto loans, credit‐cards, personal lines) are smaller in comparison. That may sound fine, but it also means the economy is over-reliant on housing and housing credit. If housing stumbles, a large chunk of the liability side of households is highly exposed. The article notes that this “concentration is exactly what regulators warned against.” Better Dwelling
3. Distortion in economic policy / monetary transmission
The article points out how this shift complicates inflation readings and monetary policy. E.g., the Bank of Canada has flagged that inclusion of mortgage rates in inflation calculations skews things, and that housing’s outsized influence on policy is problematic.
Essentially: when housing becomes central to both debt and wealth, the usual mechanisms of macro-policy (interest rate changes, consumer-spending feedbacks) can behave in atypical ways.
4. Spillovers to consumption, net worth, and broader economy
If a household is heavily leveraged in housing, then a drop in house value (or an increase in payment) reduces net worth, which usually triggers lower consumption. That in turn reverberates through GDP. The article states: “When housing drives both debt and wealth, a correction doesn’t just hit homeowners—it reverberates across the whole economy.” Better Dwelling
So the risk is not just personal (for the individual homeowner) but structural (for the economy).
What’s causing this trend?
Several factors underpin why mortgages are now such a dominant share of household debt:
Low borrowing cost history: Over the past years, interest rates were historically low. That encouraged households to borrow more for housing (or refinance) and take on larger mortgages.
Housing market dynamics: Canadian real estate (particularly in major markets) has been a key driver of asset growth and wealth accumulation. With housing expensive, the size of mortgages increases.
Slower growth in other credit categories: The article mentions that while mortgages are growing at ~4.75 % y/y, “other forms of credit” remain weaker. So even if total credit growth is modest, the share of mortgages rises simply because other forms are slumping or flat.
Regulatory & economic environment: Mortgage rules, amortization periods, policy measures all play a role in shaping household debt composition. Also, since many households view housing as both home and investment, there’s less appetite for “discretionary debt” like personal loans.
What does this mean for Canadians and policy-makers?
For households:
Match risk appetite and capacity: If you’re heavily mortgage-borrowed, you should be aware that interest rates might rise (if they aren’t already high), and housing price growth might slow or reverse. That could squeeze budgets or erode equity.
Don’t rely solely on home equity wealth: Many Canadians’ only major asset is their home. If housing slows, the cushion disappears. Diversification might be wise.
Maintain buffers: With a large proportion of debt riding on one asset class (housing), a financial shock (job loss, rate spike) could have outsized impact. Emergency funds and prudent amortization schedules matter.
For policy-makers and regulators:
Monitor systemic risk: The high concentration of mortgage debt suggests that housing remains a key vulnerability in the Canadian economy. Stress testing, macro-prudential tools, and oversight become critical.
Align inflation/monetary frameworks: As the article notes, mortgage rates influence inflation and policy in unusual ways in Canada. If housing dominates wealth/debt, policy frameworks may need to adjust for that distortion.
Address imbalances: If other credit categories are weak but mortgages strong, the economy may have too much exposure to housing at the expense of broader diversification (both in credit and in productive investment). That could hamper long-run resilience.
A cautionary lens: what could go wrong?
Here are some of the “what ifs” that make this trend worth watching:
Interest-rate shock: If interest rates rise significantly (say due to inflation or global shocks), mortgage payments will increase. For highly leveraged households, that could push into stress or force consumption cutbacks.
Housing‐price correction: If house prices stagnate or fall (even modestly), homeowners with large mortgages may see their nets worth fall, may lower consumption, may delay moving or buying, which drags the economy.
Regional imbalances: Some provinces or cities may be more exposed than others (e.g., where housing is most expensive). A localized shock (job loss, commodity slump) could ripple through.
Policy missteps: If monetary policy misreads inflation because of housing distortions, the risk is setting rates too high (or too low) and aggravating imbalances.
Credit fatigue in other sectors: If consumer credit remains weak (because households are busy servicing mortgages), that means slower spending outside housing-related sectors. The economy becomes more reliant on housing for growth—a fragile dynamic.
Why this isn’t exactly “the sky is falling” – but still a red flag
It’s worth emphasising the nuance: the story is not that Canadians are going broke tomorrow. Some mitigating points:
The growth rate in borrowing is moderate (4–5 % y/y), not spectacular. The monthly growth in August was only +0.48 %. Better Dwelling
Canada has a fairly mature mortgage market and regulatory framework. It isn’t in the same precarious position as some historically doomed housing bubbles.
Many homeowners locked low rates, many households have built equity, and Canadian banks have relatively strong capital positions.
Nevertheless, the high share of mortgages does tilt the risk profile upward: it increases the sensitivity of households and the economy to housing market conditions and interest rates. “Moderate risk today, but higher differential risk tomorrow” is a fair shorthand.
Looking ahead: what to watch
If you want to track how this story unfolds, here are some key variables to monitor:
Mortgage rate trends: Whether the Bank of Canada raises or holds rates, and how that flows into new mortgages or renewal rates.
Housing‐price growth / stagnation: If prices slow meaningfully (or fall) across major markets, the wealth effect may reverse.
Other-credit growth: Are consumer loans, auto loans, and other credit picking up? If not, households may be under strain.
Delinquency/default rates: Are more borrowers falling behind on their mortgages? That’s a warning sign.
Policy shifts / macro-prudential actions: Government or regulator moves (loan-to-value limits, stress tests) might tighten to counter risk.
Consumption and GDP growth: If household spending weakens while housing remains strong, that signals an imbalance.
Conclusion
The article from Better Dwelling lays out a clear macro-financial story: Canadian household debt has reached a new inflection point — with nearly three‐quarters of total debt now tied to mortgages. That’s a record concentration, and it matters. Because when the majority of a household’s liability side is anchored in one asset class (housing) that is interest-rate sensitive and illiquid, the potential for amplified stress rises.
For Canadians, it’s a reminder to assess personal risk: how leveraged you are, how reliant on housing credit you’ve become, and whether you are prepared for potential rate or price shocks. For policy‐makers, it’s a signal of vulnerability in the economy: a heavy tilt toward housing means shocks to that sector could propagate far and wide.
The story is not about panic, but about vigilance. A moderate growth rate in debt today doesn’t rule out bigger risks tomorrow, especially when the composition is so skewed. As the saying goes: it’s not just the size of the debt, it’s what kind, how concentrated, and how flexible the borrower is to changes. With ~8 in 10 dollars of Canadian household debt now in mortgages, the gaze of risk is firmly on housing.
