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consolidate your debt

Can you refinance your mortgage to consolidate your debt?

Is it time to consolidate your debt?

Debt gnaws at the very essence of living and can make life difficult if it’s not under control. From credit card bills to student loans, it can be stressful and overwhelming to juggle all the debt you hold, especially on top of your living expenses.

But what if there was a solution to this problem? And what if the solution might actually help you save some money while paying off your debt?


The solution is to refinance your mortgage to consolidate your debt.

However, there are certain conditions. 

  1. You need to own a house.
  2. There needs to be a mortgage on it.
  3. You need to own enough equity.

Let’s talk about the details.

How do you consolidate your debt?

Imagine you have a bunch of books lying throughout the house. Wouldn’t it be easier if there was one shelf to store all the books?

It’s exactly the same logic with debt consolidation mortgages. It’s simply a matter of compiling all of your debt into one place, and in this case, that one place is your mortgage.

This means you would have one payment to make as opposed to several. You see, a mortgage is one of the lending products that has the lowest interest rate. The reason behind that is – your mortgage is secured. If you stop paying your mortgage tomorrow, your financial institution can take your house away since it’s backed by collateral. This is not the same with credit cards. They are not secured and the risk is high for the lender. That is why financial institutions in Canada give you credit cards for a higher interest rate.

Since your mortgage has a low-interest rate and because you decided to refinance your mortgage to consolidate your debt, your overall interest rate decreases. This is why this solution is an extremely effective way to tackle your debt.

Let’s put it in perspective.

Assume you owe $30,000 on your credit card with an interest rate of 24 per cent ($7,200). Imagine the same $30,000 to be paid with an interest rate of four per cent ($1,200). The difference is $6,000. This is the amount you will save if you refinance your mortgage to consolidate your debt.

Because of COVID-19, the interest rates have fallen extremely low. If you’re contemplating taking advantage of refinancing your mortgage to consolidate your debt, now would be a good time to do it.

Calculate your loan-to-value ratio

When determining if you qualify for a mortgage refinance to consolidate your debt, an important metric to take note of is the loan-to-value ratio. Not only will your loan-to-value ratio help decide if you qualify for a mortgage refinance, it will also help your lender suggest alternate options for you to consider.

Simply put, your loan-to-value is the ratio of how much you owe on your current mortgage loan, divided by the current value of your home.

For example, say your home is valued at $100,000 and your current mortgage is $80,000, your loan-to-value ratio is $80,000 divided by $100,000, which equals 80 per cent.

To qualify for a mortgage refinance and to get a conventional loan, the maximum loan-to-value ratio you can have is 80 per cent.

Determining your loan-to-value ratio is a key step in the process of determining if you can refinance your mortgage to consolidate your debt.

If you refinance at the end of your mortgage term, you will most likely avoid being charged fees, but if you decide to refinance before your term has ended, you may face some fees to get out of your term. This is definitely something to ask a professional!

What types of loans can you consolidate?

There are multiple loans that can be consolidated. Some of them include:

  • Credit card loans
  • Car or auto loans
  • Education loans
  • Line of Credit
  • Payday loans

What should you be aware of?

Your unsecured debt does not have any collateral. But when you refinance your mortgage to consolidate debt, your monthly amount to be paid increases. You also lose a bit of equity with this process, so make sure you always pay the debt consolidation mortgage on time.

This type of mortgage can be a big advantage, but, if misused, you would be in a worse position than before. It can be very tempting to reuse your line of credit or credit card once it’s paid off completely. But the point of this solution is to get out of debt, so don’t max it out again!

What are the advantages?

There is a reason why so many Canadians use debt consolidation mortgages as leverage. As long as you have a steady income every month, there are so many reasons why refinancing your mortgage to consolidate your debt might serve you well.

Here are a few of those reasons:

Lower interest rate

This is the BIGGEST advantage. With lower interest rates, you are saving a lot more money than if you paid each debt off individually.


Paying off every single debt you owe sucks the life out of your monthly financial planning.

With a debt consolidation mortgage, your monthly payment will be a bit more than your regular payment, of course. But it would be easier to keep tabs of debt when you roll them all into one.

Pay off your debt faster

When you have multiple debts, the money you owe can drag on for decades. While refinancing your mortgage to consolidate your debt, you are given a set term or a payment schedule to clear it off.

Your credit score soars

Your credit score is basically your relationship with debt and how you pay it off. When you consecutively make your payments on time, you will see your credit score jump.

As always, it’s important to speak with a professional to determine if refinancing your mortgage to consolidate your debt is a good option for you. Every individual situation is different, so seek advice before you move forward.

When looking for more information about how to consolidate your debt and refinance, give us a call at Clinton Wilkins Mortgage Team! You can give us a call at 902-482-2770 or get in touch with us here!