B4 G THE GLOBE AND MAIL | MONDAY, MARCH 16, 2026 | REPORT ON BUSINESS OPINION & ANALYSIS W hat would you do if your mortgage came up for renewal and you couldn’t afford to keep your home? A lot of Canadian home- owners have had to face that question. The Bank of Canada went on an aggressive interest-rate hiking cy- cle in 2022. Prime rates, bond yields and mortgage rates fol- lowed. Most homeowners were on fixed-rate mortgages and not immediately affected, but they faced the prospect of much high- er rates at renewal. Consider a homeowner who’d bought in 2018 with a five-year fixed-rate mortgage. By the time of renewal in 2023, five-year rates were as much as four percentage points higher. The homeowner’s mortgage payments would have risen by nearly 50 per cent. That could be close to $2,000 a month for a million-dollar mortgage. If the homeowner was unable to afford the increase, they would have been forced to sell. Fortunately, those high rates lasted only a year before they started coming down, and so homeowners who had mortgages coming up for renewal dodged the peak. But all still faced higher rates – manageable, but painful. In hardest-hit Toronto, delin- quency rates – the proportion of mortgage holders who are behind in payments by 90 days – have more than quadrupled since the low. Canadian homeowners have now had a taste of renewal risk – the risk that rising interest rates will cause mortgage payments to grow on renewal – but they are still unable to protect themselves from it. Available mortgages remain the same, so home owner- ship continues to be both more risky and less affordable than it needs to be. Can this be fixed? First, we need to acknowledge the fundamental needs of mort- gage borrowers. For most borrow- ers, their home is their largest asset, and it is a very long-term asset indeed. The land will be there forever and the house might be good for 100 years. The best way to borrow for such a long- term asset is with a long-term mortgage, what I call a “Matching Mortgage,” for which the interest rates and monthly payments are fixed until the mortgage is repaid. Imagine a 25-year Matching Mort- gage. Homeowners would com- pletely avoid renewal risk. But these needs of homeown- ers clash with the needs of the banks, the dominant providers of mortgage loans. Their money to finance mortgages comes mostly from short-term deposits, such as chequing accounts and savings accounts. The safest way for them to lend is with floating-rate or shorter-term fixed-rate mortgag- es that typically run for terms of one, three or five years. With long-term fixed-rate mortgages, banks would face the opposite renewal risk – the risk that monthly mortgage pay- ments didn’t rise even when their cost of deposits did. Banks cannot face this renewal risk, so banks cannot provide Matching Mort- gages. If we want a better mortgage system, we must look elsewhere. We can start by looking to the $6- trillion Canadian bond market. Banks are active players in the bond market but only for shorter-term bonds, such as those seen for the standard five-year fixed mortgage. The natural lenders for Match- ing Mortgages would be life insur- ance companies and pension funds, who have a longer horizon. We call them long-term lenders because they have long-term lia- bilities that are best matched by long-term loans. Matching Mort- gages could be a perfect fit be- tween Canadian homeowners and insurers and pension funds. Not only are they incentivized to provide such long-term loans, their long horizon allows them to bring special capabilities too. Imagine a life insurance com- pany offering a “whole life mort- gage,” under which they would al- low homeowners to move their mortgages from one home to the next, add and blend new borrow- ing if required, and even transi- tion to an interest-only or reverse mortgage basis as they ap- proached retirement. Imagine a pension fund offering an infla- tion-indexed mortgage under which the initial monthly pay- ments would be set 20 per cent lower in exchange for an agree- ment that payments would be ad- justed each year in line with inflation. If we can welcome a new class of lenders to Canadian resi- dential mortgages, the innova- tion and benefits may be endless. So why don’t insurers and pen- sion funds offer Matching Mort- gages already? Their problem has been an ancient piece of Cana- dian legislation called the Interest Act. After the first five years of a mortgage, it prohibits lenders from seeking compensation for losses they might incur if borrow- ers repay their loans early. With- out this protection beyond five years, lenders will not lend for more than five years. While pur- portedly protecting homeowners from unfair charges, the Interest Act actually denies them the abil- ity to protect themselves against renewal risk and protects banks from competition. Homeowners’ inability to pro- tect themselves from renewal risk by choosing Matching Mortgages leads to a number of unintended consequences. Risks can behave like dominoes. Homeowners’ renewal risk becomes lenders’ credit risk because lenders need to protect themselves against borrowers being unable to carry their mortgages on renewal. And lenders’ credit risk can then be- come a risk to Canada’s banks be- cause of the massive size of their residential mortgage holdings. If lenders’ inability to renew leads to a large number of foreclosures, we will also have to fear a vicious circle with the economy declin- ing. With all these dominoes at play, regulators of financial insti- tutions take notice, and with that comes another problem. Regula- tors require lenders to protect themselves in at least two ways: first, ensuring that homeowners’ earnings would be sufficient to support the mortgage payments even if interest rates were two per- centage points higher; and sec- ond, limiting the amortization period, perhaps to 30 years. That’s because rising mortgage rates can lead to significant growth in required monthly payments, and longer amortization periods will make these increases even larger. But in protecting themselves against potential borrower dis- tress, short-term lenders reduce potential homeowners’ borrow- ing capacity by about 25 per cent. This significantly reduces the affordability of home ownership and may also exacerbate the wealth gap between younger and older Canadians. Many homeowners think they are adequately served by the cur- rent system, but they face limited choice, higher monthly payments and unavoidable exposure to renewal risk. If interest rates ever returned to the levels reached in the early 1980s, the result would be calamitous. We can and should offer home- owners the option to protect themselves against renewal risk. Matching Mortgages today would have slightly higher interest rates than five-year mortgages, in just the same way that 10-year bonds have a higher yield than five-year bonds. This could be offset by extending the amortization peri- od by about five years, after which the monthly payments would be about the same. Once borrowers are protected against renewal risk, we can safely adjust the mortgage under- writing process to permit lower monthly payments and greater housing affordability. Innovation to Canada’s mort- gage market is long overdue. While renewal risk to borrowers was largely forgotten during 40 years of declining interest rates, interest rate increases over the past few years have brought it back into focus. Matching Mort- gages may not be the best solu- tion for all borrowers. Neverthe- less, with the addition of new lenders, new competition and new mortgage alternatives, they will bring an improvement for all. This essay is part of the Prosperity’s Path series. In a time of geopolitical instability and a shifting world order, the challenges facing Canada’s economy have only gotten more visible, numerous and intense. This series brings solutions. It’s time to fix our broken mortgage system The needs of Canadian homeowners often clash with the needs of banks. But there is a better way DUNCAN McCALLUM PHOTO ILLUSTRATION BY THE GLOBE AND MAIL The ups and downs of mortgage rates Canadian prime interest rates, 2015 to present 2016 2018 2020 2022 2024 2026 0 1 2 3 4 5 6 7% 4.45% 4.45% THE GLOBE AND MAIL, SOURCE: BANK OF CANADA A big shock at renewal At renewal, a homeowner on a 25-year amortization would face a monthly mortgage payment that is 17 per cent higher if their rate increases by two percentage points 20 40 60 80 100% 1 pp 2 pp 3 pp 4 pp 5 pp 6 pp 25-year 30-year 35-year 40-year amortization increase in monthly mortgage payment increase in monthly mortgage payment Increase to rate (percentage points) Increase to rate (percentage points) Note: Based on original mortgage rate of 5%. THE GLOBE AND MAIL, SOURCE: AUTHOR’S CALCULATIONS C anada wasn’t forewarned. Bombs rained down on Teh- ran on Feb. 28 and neither the Americans nor the Israelis conferred with us. But the calls flooded in the next day from allies and trading partners who feared their supplies of oil and liquefied national gas (LNG) would be cut off by Iranian mil- itary operations in the Strait of Hormuz. More than a decade ago, Cana- dian leaders recognized that pouring funds into our armed forces wasn’t a policy that won elections. A peace dividend was easier to sell. But Canada pos- sessed one geopolitical asset that carried more value for allies and trading partners alike: a secure, abundant source of energy allies and trading partners could draw on in good times and rely on in times of adversity to keep their economies running smoothly. It would also expand the Canadian economy in the process, com- pounding the peace dividend. Ports were dredged off the B.C. coast to accommodate super- tankers from the Pacific region that had long sought energy sta- bility. Pipelines were built to carry oil and LNG to those markets along with large storage facilities in Alberta and on the B.C. coast itself – strategic energy reserves that could be filled by Ottawa when oil and LNG prices were low and released when needed. Even TC Energy’s natural gas mainline into Ontario and Que- bec was expanded and its Line 2 reopened to bring natural gas from the West to Eastern Canada, where new LNG plants supplied markets across the Atlantic. To that was added new oil pipelines to supply Quebec and Atlantic Canada refineries with Canadian oil to ensure energy independ- ence. When German chancellor Olaf Scholz visited Canada in August, 2022, five months after Russia’s invasion of Ukraine, he came with a request: Help Germany and the EU get off Russian gas. Canada’s prime minister at the time, Justin Trudeau, shook his hand and assured him his govern- ment had his back. Allies could rely on Canada. Nothing of the kind happened, of course. Mr. Trudeau rebuffed German overtures, saying there wasn’t a business case to be had for LNG export terminals on Canada’s East Coast. Now, if the chancellor wanted green hydrogen, well that was something to discuss. When Prime Minister Mark Carney received a standing ova- tion from many world leaders in Davos, Switzerland, it wasn’t only the words that inspired, but the thought that Canada might, this time, just fully appreciate how it could serve as an energy anchor for its allies. Canada could fortify their economies against Russian ag- gression in Europe and Iran’s theocratic, fascist government so obsessed with Jew-hatred that it has and would continue to turn the Middle East upside down to secure a chance at incinerating Israel. It will take time, maybe time much of the world doesn’t have now. With US$100 barrels of WTI crude, RBC projects inflation heading into the 3-per-cent range this year for Canadians, an infla- tion surge most are ill-prepared to absorb. The pinch of higher oil prices will sting global economies too. To try and mitigate the economic pain, the International Energy Agency’s 32 member countries, Canada included, decided last week to release 400 million bar- rels of oil reserves into the mar- ket, a historic move meant to help calm markets and lower fuel prices on Main Street. The United States and Japan will be the largest contributors to the release. Canada? This country doesn’t have oil reserves, leaving its Energy Minister, Tim Hodgson, going cap-in-hand to Canadian oil producers asking if they can produce more while assuring IEA members “we will do our part.” The result was underwhelming and a little unclear. Late Friday Mr. Hodgson said Canada would contribute 23.6 million barrels to the IEA’s plan, though it’s highly unlikely that’s 23.6 million on top of current production. Our pipe- lines are at or near capacity. Cana- da is a “just-in-time” energy pro- ducer with infrastructure that couldn’t pump much oil and nat- ural gas from strategic reserves even if we had them. After his Friday statement, Mr. Hodgson said that Canada’s contribution to the IEA would amount to 140,000 additional barrels a day (b/d) and is simply part of already-planned produc- tion increases. For context, 140,000 b/d is a mere 2.6-per-cent increase. As Pierre Poilievre rightly noted in his Economic Club of Canada speech last month, Cana- dian governments have con- sciously pursued policies that make it hard to export our energy products. Allies in the Pacific region, such as Japan, South Korea and Taiwan, are in times like this, left to their own devices. So too are NATO allies and European trading partners. Mr. Carney is now famous for saying we must see the world as it is. What this war with Iran helps us see is Canada as it is. Not a mid- dle power, but a minor player – for now. In Iran oil shock, Canada talks big but is useless to our allies JOHN TURLEY-EWART OPINION Contributing columnist for The Globe and Mail, a regulatory compliance consultant and a Canadian banking historian PROSPERITY’S PATH OPINION Former managing director and head of infrastructure finance for Canada at RBC Capital Markets