Private Mortgages in Ontario's Rate Hike Era: What 2022-2023 Did to Borrowers

This article looks back at 2022 and 2023 and was first published in December 2023. Figures in the sections about those years describe that period. Where we describe what has happened since, the section is dated October 7, 2026.

In March 2022, the Bank of Canada raised its overnight rate target to 0.50%, from 0.25%. By July 2023 it was 5.00%. That was ten increases in about sixteen months, including a full percentage-point increase in July 2022.^[1][4] The speed of the change reshaped the mortgage market in Ontario, and some borrowers began asking about private lending.

Ten hikes in about sixteen months

The Bank announced each increase on a scheduled decision date. Each date and resulting overnight rate target below comes from the Bank's own announcement for that day:^{[1][2][3][4][5][6][7][8][9][10]}

Variable mortgage rates generally follow a lender's prime rate, which moves with the Bank's rate. As a simple illustration, if a variable rate rose by the same 4.75 percentage points as the overnight rate did (from 0.25% to 5.00%), a rate of 1.50% would become 6.25%. On a $500,000 mortgage over 25 years, the monthly payment at 1.50% is about $2,000, and at 6.25% it is about $3,300. Those figures are our own arithmetic for illustration; they assume monthly compounding and a payment that is re-set to keep the original 25-year schedule.

The trigger rate problem

Many variable-rate mortgages keep the payment the same even when the rate changes. When rates rise, more of each payment goes to interest and less to principal. The trigger rate is the rate at which the whole payment goes to interest and none reduces the principal. Your trigger rate is set by your mortgage contract.^[12]

The Bank of Canada estimated in November 2022 that about three-quarters of variable-rate mortgages in Canada had fixed payments. Using data at federally regulated lenders as of the end of October 2022, it estimated that about half of those mortgages had reached their trigger rate, which it put at nearly 13% of all mortgages. It called this an upper-bound estimate because it did not account for things borrowers might have done, such as prepayments.^[11]

Past the trigger rate, the unpaid interest is generally added to the balance, which is called negative amortization. The lender may then ask the borrower to raise payments, make extra payments, or switch to a fixed rate, and may offer to extend the amortization if it is not already at the maximum.^[12][13]

An illustration

The following is an illustrative example with rounded numbers. It is not a real client file.

Priya and Daniel* took a $496,000 variable-rate mortgage at 1.45% on a 25-year amortization. On those terms the payment is about $1,970 a month, and the trigger rate on the original balance works out to about 4.8% (twelve payments divided by the balance). Suppose their rate later rose to 6.45%. After about 20 months of payments the balance would be about $468,000, and a month of interest at 6.45% would be about $2,520. The payment of $1,970 would no longer cover it, and roughly $550 of unpaid interest a month would be added to the balance. To get back on the original schedule, the payment would need to be about $3,240.

A lender in that position may ask for a higher payment or an extra payment. If a household cannot do either from its own cash flow, some borrowers ask a broker about a short-term private second mortgage to cover the gap while they adjust their finances. That costs more than a bank mortgage and is not right for everyone, so it should come with a plan to get out of it.

* Real names have been replaced with fictional names. This case is illustrative.

Bank qualifying rules and the stress test

Federally regulated lenders must qualify borrowers on an uninsured mortgage at the greater of 5.25% or the contract rate plus 2%.^[14] As contract rates rose, the qualifying rate rose with them. For example, a contract rate of 6.00% means qualifying at 8.00%. A borrower who could afford the real payment could still fail the test and be unable to switch lenders for a new mortgage.

That left some borrowers with a few options: accept their current lender's renewal offer, look at an alternative (B) lender, or look at private lending.

Why some borrowers looked at private lending

The reasons we heard most often in that period were these:

• Trigger rate shortfalls. Borrowers who needed a lump sum to satisfy a lender on a variable mortgage.
• Qualifying rules on a new mortgage. Homeowners who could not meet a bank's stress test to move to a new lender.
• Less room in the equity. If a property value had softened since a purchase, the loan-to-value ratio could look worse than it did at closing, which can limit conventional refinancing options.
• Debt consolidation. Homeowners with high-interest debts looked at refinancing to combine them, and some did not qualify at a bank.
• Separation and divorce. One partner buying out the other may need to qualify alone, which can be harder under the stress test.

Private lending costs more than bank lending and the terms are usually short. We do not quote private rates in this article. It is meant to be a bridge, not a long-term arrangement, and the private mortgage guide explains how it works.

The renewal wave

In 2023, CMHC estimated that 2.2 million Canadian mortgages, about 45% of those outstanding, would renew in 2024 and 2025 and face a higher interest rate. It estimated that average monthly payments for those households could rise by roughly 30% to 40%. For a $500,000 mortgage with a five-year fixed term and a 25-year amortization, it showed a move from 1.94% to 5.45% adding about $950 a month.^[15]

The federal government announced the Canadian Mortgage Charter in its 2023 Fall Economic Statement on November 21, 2023. It sets out the relief the government expects banks to offer people who are in financial difficulty with their mortgage.^[16] It describes expectations of banks, so a borrower with a private mortgage should not assume it applies and should ask their own lender what is available.

What has happened since (dated October 7, 2026)

The article was first written in December 2023, when the Bank of Canada's rate stood at 5.00%. The Bank held at 5.00% on December 6, 2023.^[17] The picture has changed since:

• The Bank began cutting rates on June 5, 2024, to 4.75%.^[18]
• On December 11, 2024 it cut by 0.50 percentage points to 3.25%.^[19]
• Its overnight rate target has been 2.25% since October 29, 2025.^[20] As of October 7, 2026, the Bank's key interest rate page showed no change since then.^[21]
• OSFI's rule for uninsured mortgages is still the greater of 5.25% or the contract rate plus 2%.^[14] Since November 21, 2024, OSFI no longer prescribes that rate for uninsured borrowers who switch lenders at renewal without increasing the loan amount or amortization, when moving between federally regulated lenders.^[22]
• The federal government says the strengthened Canadian Mortgage Charter lets insured mortgage holders switch lenders at renewal without another stress test.^[23]

These facts are as of the date above. The Bank announces decisions on a published schedule, and rules can change, so confirm current figures with the Bank of Canada, OSFI and your lender.

For borrowers in a private mortgage, the exit strategy is still the priority. We talk through targets such as a credit score, a debt ratio and a timeline, and if the numbers are not there for a bank today, a 6 to 12-month plan to get there.

The rate environment has changed, but the principle has not: a private mortgage should be a bridge, not a long-term arrangement.