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“All the evidence right now is that households have managed through this quite well,” he said.

“I don’t want to declare victory 鈥� but after early 2027 maybe we will.”

In its 2024-2025 risk outlook, OSFI highlighted that for all mortgages outstanding as of February 2024, 76 per cent of those already have or will come up for renewal at significantly higher rates by the end of 2026. It added that payment shocks would be most significant for homeowners who took out mortgages between 2020 and 2022.

And while arrears on mortgages are on the rise, they remain below pre-pandemic levels. Still, homeowners haven’t been relying on credit cards and lines of credit more, according to the Bank of Canada’s Financial Stability Report published in May.

Routledge recognized that defaulting on a mortgage is a “terrible” personal experience, but he is not worried about rising arrears impacting Canada’s banks, calling the risk “manageable within the earnings and capital” of the lenders.

Still, residential mortgage lending and the housing market are top of mind for the regulator among other risks to the financial system, he said, as it accounts for most of Canada’s economic activity.

Last week, OSFI announced that it would no longer require banks to apply the mortgage stress test to borrowers with uninsured mortgages planning to switch lenders, as long as the amortization schedule and current loan amount remained the same 鈥� referred to as a “straight switch.”

Routledge said that while 95 per cent of Canadians don’t switch lenders, OSFI didn’t want the stress test to hamper homeowners’ ability to get a mortgage at much higher rates.

Part of the motivation to change the rules came from the appearance that the stress test was being unfair to Canadians after several complaints, he added.

“That did make a difference in our decision making, even though it was only going to be a limited number of Canadians.”

The new rules also improve choice in an industry that has been criticized for lacking competition.

They followed a major reform by the federal government announced two weeks ago, which will allow 30-year amortizations for insured mortgages as well as a reduction in the down payment required for homes. Routledge said the risk of these new mortgages is not 鈥渕aterial鈥� to the health of the banking system.