A new report from the National Bank of Canada suggests the country’s rising public spending is pushing government borrowing higher—something that ultimately affects mortgage rates, business loans, and credit costs across the entire economy.
For homeowners and buyers across Toronto, Vaughan, and the Greater Toronto Area, this could mean mortgages staying expensive even if inflation cools.
Government Spending Is Growing Faster Than the Economy
According to the report, government investment has been expanding much faster than Canada’s overall economic growth.
Over the past three years:
Public sector capital investment grew about 3.5% annually
Canada’s GDP grew only about 1.7% annually
That means government spending is expanding at more than double the pace of the economy itself.
Economists say much of this surge happened after the pandemic, when public spending stepped in to fill the gap left by weak private-sector investment.
In simple terms:
👉 Businesses slowed down their investments.
👉 Governments increased spending to keep the economy moving.
Canada’s Economy Is Becoming More Government-Driven
Before 2020, government spending rarely exceeded 25% of Canada’s GDP, except during major crises like the Global Financial Crisis or the pandemic.
Today, however, the government sector represents more than a quarter of the entire economy.
Meanwhile, private investment—especially in non-residential business spending—has struggled to recover.
Compared with the United States, Canada’s economic growth is being driven far more by government spending rather than private enterprise.
Public Debt Is Rising — Even With Spending Changes
Governments are trying to shift how money is spent.
Instead of focusing on payroll and operational costs, spending is increasingly being directed toward capital investments, such as:
Infrastructure
Defense spending
Military equipment
Public projects
But while the type of spending may be changing, the borrowing required to fund it continues to rise.
And in financial markets, more borrowing usually means higher interest rates.
Why This Matters for Mortgage Rates
Here’s the key point many homeowners miss:
Government borrowing directly affects mortgage rates.
Government bonds act as the benchmark for lending across the economy. When governments borrow heavily:
Bond yields rise
Lenders demand higher returns
Mortgage rates increase to match those higher yields
This is why economists warn that large fiscal deficits can keep borrowing costs elevated, even if central banks begin lowering policy rates.
For homeowners, this means:
Mortgage renewals may remain expensive
Housing affordability could stay tight
Refinancing opportunities may become more limited
The Impact on Toronto & Ontario Homeowners
In markets like Toronto, Vaughan, and the GTA, housing demand is already sensitive to interest rates.
Higher long-term borrowing costs could lead to:
Slower housing market recovery
More pressure on renewing mortgages
Greater demand for alternative lending solutions
This is particularly true for:
Self-employed borrowers
Investors
Homeowners facing payment shock at renewal
Private Lending May Fill the Gap
When banks tighten credit or interest rates remain elevated, private mortgage lenders often step in to provide flexibility.
Private lending can offer solutions such as:
Second mortgages
Home equity loans
Bridge financing
Fast refinance options
For borrowers with significant home equity, these tools can help reduce financial pressure while waiting for interest rates to stabilize.
What Homeowners Should Do Now
If you own property in Ontario, now is the time to prepare for a higher-rate environment that could last longer than expected.
Smart strategies include:
Reviewing your mortgage before renewal
Accessing home equity strategically
Consolidating high-interest debt
Planning ahead for refinancing options
Even small changes today can make a major difference in long-term financial stability.
Speak With a Mortgage Expert
If rising rates or an upcoming mortgage renewal has you concerned, professional guidance can help you explore your options.
Lendworth Financial specializes in flexible mortgage solutions for Ontario homeowners.
Your Equity Deserves More™
Whether you're dealing with renewal shock, refinancing challenges, or bank declines, our team can help you unlock the equity in your home and create a strategy that works.