Refinancing to consolidate debt: when it helps and when it hurts
Moving high-interest debt into your mortgage swaps rates near 21.35% on cards for a mortgage rate near 4.58%, which frees cash every month. The trap is time: spread over a 22-year amortization, $54,000 of debt costs about $32,618 in interest. Keep paying what you paid before ($1,400 a month) and it's gone in 44 months for about $4,832. Your home becomes the security for that debt.
The math, three ways
| Plan | Monthly | Interest |
|---|---|---|
| Keep paying the debts | $1,400 | $14,906 |
| Roll in over 22 years | $336 | $32,618 |
| Roll in, keep paying the old amount | $1,400 | $4,832 |
Card and loan rates are Bank of Canada averages; the $2,000 of fees is our estimate and there's no penalty in this example. Break mid-term and you'd add the penalty, which can wipe out the saving. The calculator takes your own numbers.
Refinance, HELOC or loan?
- Refinance: the lowest rate, but resets the mortgage and may trigger a penalty mid-term.
- HELOC: no penalty on your mortgage; interest-only and tied to prime (4.70% since October 29, 2026), so you need your own payoff plan.
- Consolidation loan: unsecured, higher rate, but a fixed payoff date and your home isn't at risk.
Rules that make it work
- Total borrowing up to 80% of value (Bank Act s. 418), and you must pass the stress test.
- FCAC warns you can face serious consequences, including foreclosure, if you can't repay money borrowed against your home.
- Lower the limits on paid-off cards or close them, so the balances don't return.
Frequently asked questions
Does consolidating debt into a mortgage hurt my credit?
Applying adds an inquiry, and the new mortgage is a larger loan; paying off cards usually lowers your credit utilization. The bigger risk is running the cards back up.
Can I consolidate debt without breaking my mortgage?
Yes: a HELOC behind your mortgage (up to 65% of value for the revolving part), a blend-and-increase with your lender, or waiting to refinance at renewal when there's no penalty.
Primary sources
- Financial Consumer Agency of Canada — Borrowing money using home equity (80% / 65% limits, fees, risk to your home) (effective October 15, 2025). Checked .
- Justice Laws — Bank Act, s. 418: 80% limit on uninsured residential loans (including refinances) (effective September 1, 2026). Checked .
- OSFI — Guideline B-20: Residential mortgage underwriting (HELOC limit 65% of value) (effective October 31, 2017). Checked .