GDP Shrinks, Rates Hold, and Ontario Borrowers Are Getting Smarter at Renewal

Three things happened this week that directly affect Toronto mortgage holders. Here’s what the data says and what it means for your situation.

Canada’s Economy Contracted in Q4 – But Rate Cuts Aren’t the Answer

Canada’s real GDP shrank by an annualized 0.6% in the fourth quarter of 2025, worse than the 0.2% contraction economists were expecting and significantly below the Bank of Canada’s own forecast of flat growth. Annual growth for 2025 came in at 1.7% – the slowest pace since the economy contracted in 2020.

The headline number looks alarming, but the details are more nuanced. The contraction was driven largely by a sharp decline in business inventories, not a collapse in consumer demand. Household spending grew at a 1.7% annualized pace, exports rose 6.1%, and government spending – particularly on defence – jumped significantly. A preliminary estimate suggests GDP was flat in January, suggesting the economy isn’t deteriorating further.

Despite the weaker-than-expected GDP reading, the Bank of Canada is expected to hold its policy rate at 2.25% and has warned that cutting rates in this environment risks fueling inflation rather than stimulating productive economic activity. For mortgage holders hoping rate relief is around the corner, the data isn’t supporting that expectation right now.

Ontario Borrowers Are Shopping Their Renewals – and Finding Better Deals

A new report from Equifax paints a mixed picture for Canadian mortgage holders. Missed mortgage payments are rising in certain markets, with Ontario and British Columbia identified as the highest-stress regions in the country. Larger mortgage balances and higher overall household debt levels mean that when payments spike at renewal, Ontario borrowers feel it more acutely than anywhere else in Canada.

But there’s a meaningful silver lining. Early missed payments – the leading indicator of mortgage trouble – appear to have stabilized compared to the previous quarter. And borrowers are responding to the pressure by doing something smart: shopping their renewal rather than automatically signing whatever their current lender sends them.

Lender switching at renewal is up significantly, according to Equifax, driven by borrowers who are more sensitive than ever to monthly payment costs. What many don’t realize is that right now, some lenders are offering up to $5,100 in cashback to clients who move their mortgage to them. On a straight switch at renewal – where there’s no penalty – that cashback can translate to real money in your pocket, not just a better rate. If you’re approaching renewal in the next twelve months, this is worth understanding before you sign anything.

Toronto Condos Are Back Below $400,000 – But Buyers Aren’t Biting

Toronto’s condo market has continued its slide into 2026. Average prices across the city and suburbs came in at $604,759 in January, representing a nearly 10% year-over-year decline. More notably, sub-$400,000 condos have returned to the Toronto market for the first time in years, with decent quality one-bedroom units of 500 square feet or more available in the high $300,000s.

Despite lower prices and mortgage rates hovering around 4%, buyer demand hasn’t recovered. The reason is straightforward: the purchase price is only part of the monthly cost. Property taxes, condo maintenance fees, insurance, and utilities add hundreds of dollars per month to the carrying cost – and those numbers aren’t declining with the purchase price. Ongoing uncertainty around U.S. tariffs and the broader economic outlook is also keeping buyers on the sidelines, with many taking a wait-and-see approach on the assumption that prices will fall further.

The inventory of smaller, sub-500-square-foot units – referred to in the industry as “dog-crate” condos – remains particularly challenging. Investors who previously drove demand for these units have largely exited the market, rents have been declining, and immigration numbers have softened. For buyers considering a condo purchase, the quality of the specific building and unit matters significantly more than it did a few years ago.

What This Means for Your Mortgage

Rate cuts are not imminent. The economic data gives the Bank of Canada more reason to hold than to cut, and the trade-war uncertainty adds another layer of complexity. If you’re approaching renewal and counting on rates to drop before your term ends, that’s a risky assumption right now.

If you’re an Ontario homeowner coming up for renewal, the most valuable thing you can do is review your options before you sign. Some lenders are offering meaningful cashback to switch, and even a modest rate improvement compounds significantly over a five-year term. If you’re mid-term and carrying high-interest debt, a refinance conversation is worth having – the cashback some lenders are offering can go a long way toward offsetting any penalty costs.

And if you’re watching the condo market, lower prices are real – but the full cost of ownership is what determines whether a purchase actually fits your budget. That’s a conversation worth having before you make a move.

Text me at 249-480-1249 with your situation and I’ll give you the numbers specific to your mortgage.

Sources: Canadian Mortgage Trends, Canadian Mortgage Professional, Wealth Professional – February 2026.