Toronto-Dominion Bank (TD) reported a return to profitability in the third quarter, rebounding after a loss earlier this year tied to U.S. regulatory and restructuring charges. But beneath the positive headline numbers, signs of rising mortgage stress among Canadian households are beginning to emerge.

The Numbers at a Glance

Net income: TD posted C$3.6 billion in profit for Q3 2025, reversing its Q2 loss.
Provisions for credit losses (PCL): The bank set aside C$971 million, down from C$1.34 billion the previous quarter.
Revenue: Topline growth remained steady across retail and wholesale banking, supported by fee income and U.S. operations.
Earnings per share (EPS): Beat market expectations, bolstering investor confidence.

The reduced provisions were the main driver of improved results, showing that management expects credit conditions to remain manageable, at least in the short term.

Mortgage Stress in the Spotlight

Even as profits recovered, TD flagged an important trend: more borrowers are beginning to struggle with their mortgage obligations.

Residential mortgage delinquency rate: Rose to 0.13%, up from 0.11% last quarter and 0.09% a year earlier.
Home Equity Lines of Credit (HELOCs): Delinquency rates also ticked up slightly to 0.15%.
Extended amortizations: Mortgages stretched beyond 35 years now account for 6% of balances, down from 7% earlier in 2025. Negative amortization is close to zero, as borrowers adjust, but the stress is clear.

For a bank as large as TD—with over C$400 billion in Canadian residential mortgages—even small increases in delinquency rates can signal meaningful strain.

Why This Matters

Canada’s mortgage borrowers are facing a triple squeeze:

Renewal Rate Shock – Many homeowners who locked in at 1.5–2% rates during 2020–21 are now facing renewal offers in the 4–5% range. For a $500,000 mortgage, that can mean an extra $800–$1,000 per month in payments.
Cost-of-Living Pressure – Inflation, while easing, continues to keep household budgets tight. Rising utility costs, groceries, and transportation all compete with mortgage payments.
Housing Market Corrections – With some regions seeing prices down 20–30%, households who bought at the peak may have limited equity and little refinancing flexibility.

A Bank’s Balancing Act

For TD, the challenge is balancing profit recovery with prudent risk management:

Lower provisions helped profits now, but if delinquency rates rise faster in late 2025, the bank may have to increase reserves again.
Regulatory scrutiny will remain high after earlier U.S. compliance issues, making conservative capital planning a priority.
Lending appetite could tighten—borrowers with weaker credit profiles may find it harder to get approvals or renewals on favorable terms.

What Borrowers Should Do

Experts say Canadians should not ignore these early warning signs.

Start renewal planning early: If your mortgage is coming up in the next 12 months, ask for rate quotes now and run scenarios at multiple rate levels.
Review your amortization: Some borrowers can extend amortizations temporarily to ease cash flow, though it means higher long-term interest costs.
Consider hybrid options: Split mortgages (part fixed, part variable) or shorter fixed terms may help balance flexibility and risk.
Use a broker advantage: Brokers can compare across lenders, including credit unions and alternative providers, to find competitive solutions.

Industry View

Market analysts caution that while the rise in delinquencies is modest so far, the trend line matters more than the raw numbers.

“Even if arrears are only at 0.13%, the speed of increase tells us borrowers are under stress,” one financial strategist noted. “The real test will come in 2026, when a large wave of renewals hits and payment shocks multiply.”

For now, TD and other big banks remain well-capitalized, suggesting no systemic risk. But for individual households, the strain is real.

Looking Ahead

The Bank of Canada’s next policy rate decision is due September 17, 2025. If inflation continues to ease, markets expect at least one rate cut before year-end. That could offer relief for variable-rate borrowers and influence fixed-rate pricing through bond yields.

Still, rate cuts are unlikely to fully offset the payment shock for homeowners renewing from ultra-low pandemic-era mortgages. Policy makers, banks, and borrowers alike will need to navigate a more fragile affordability environment into 2026.

TD’s return to profit is good news for investors, but the more important story is happening at the household level. Rising delinquency rates, even from a low base, show that Canadians are struggling to absorb higher mortgage costs.

For borrowers, the message is clear: plan ahead, seek advice, and prepare for tougher renewals. For the industry, TD’s earnings signal that while the banking system remains strong, the real stress test lies in the coming years.

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