How Canada’s Rising Debt Is Reshaping Mortgages, Rates, and Affordability

After being in this business for 17 years, I’ve seen a lot of changes—from the mortgage world itself to the broader economic landscape that shapes everything we do. When you’ve been watching rates, debt levels, and government policy as long as I have, you start to see how the past quietly sets the stage for where we’re headed next.

Inspired by the release of the 2025–26 Federal Budget, we recently took a deep look at how Canada’s finances have shifted over the last decade. It’s eye-opening, and it helps explain why the cost of living, borrowing, and home ownership feel so different today compared to when I started in this industry in 2009.

Here’s the big picture—and why it matters.

Federal Debt Has More Than Doubled in Ten Years

Back in 2015–16, the federal government was essentially balancing the books. Total debt sat around $619 billion, interest costs were about $25.7 billion, and debt-to-GDP was a comfortable 31%. Most would have considered Canada’s finances strong and stable.

Fast-forward to the 2025–26 budget:

• Gross federal debt: $1.347 trillion, heading toward $1.533 trillion

• Projected deficit: $78.3 billion

• New debt since 2015: $784 billion

• Expected additional borrowing over the next five years: $317 billion

In simple terms, federal debt has risen 148% in a decade—from about $619 billion to over $1.5 trillion. Revenues have grown, but spending has grown faster. What used to be a surplus has become long-term structural deficits.

As someone who works in mortgages every day, I see the downstream effects of this—on interest rates, inflation, affordability, and overall borrower stress. Money is more expensive because borrowing is more expensive… everywhere.

Interest Costs Are Climbing Fast—and the Debt Ceiling Is Rising Again

Two numbers in the 2025 budget stopped me in my tracks:

1. Annual interest costs: $55.6 billion—more than double where they were ten years ago.

2. Proposed borrowing limit: increasing by $415 billion, up to $2.541 trillion.

   
   

To put that into perspective:We’re now spending more on interest payments alone than the cost of major federal programs like Employment Insurance or child-care initiatives. And we’re very close to surpassing the cost of Old Age Security.

Add to that the plan to issue $589 billion in new bonds and T-bills in 2026–27—almost matching the level we only hit during the peak of COVID support—and it’s clear how sensitive our system has become.

If rates rise again or the economy slows, refinancing this growing pile of debt gets even more expensive. As I often say to clients: debt doesn’t disappear—it just becomes more costly to carry.

Nominal GDP Grew 55%, But the Money Supply Almost Doubled

At first glance, GDP growth from $2.05 trillion to $3.18 trillion (up 55%) looks like healthy economic progress.

But here’s the catch:Canada’s money supply (M2) grew from $1.4 trillion to $2.74 trillion—almost 100% growth.

That’s the kind of monetary expansion that fuels inflation. And inflation is exactly what Canadians have been feeling, whether at the grocery store or while renewing a mortgage.

This is why we talk about a Big Mac hitting almost $10. It’s not “just inflation”—it’s the result of the money supply growing much faster than the real economy.

The nominal GDP number gets bigger, which can make our federal debt look less overwhelming on paper. But interest payments don’t get easier just because the numbers shift—they’re very real, and they continue to rise.

If there’s one thing I’ve learned since starting in mortgages in 2009, it’s that financial environments shift in cycles—but the fundamentals never change. Debt has to be managed. Money has to be priced properly. And households—just like governments—feel the impact when the cost of borrowing climbs.