Consolidating debt against home equity is a math problem. Whether it helps depends on the full picture.
Carrying credit card balances, car loans or other obligations at higher rates while holding equity in a property is a specific situation. A refinance may change monthly carrying costs, but it is not always the right move and it is not free. The numbers, including the costs of doing it, are what decide the question.
Where debt consolidation files get complicated
Several payments, several rates
Multiple payments across several creditors, each at a different rate, add up. Where equity exists in a property there may be a path to simplifying those obligations, though it comes with its own costs and trade-offs.
A refinance was declined
Lenders assess loan to value, income and total debt servicing together. Adding debt to a mortgage increases the mortgage balance, which affects those ratios. A single measure being offside can lead to a decline even where there is equity in the property.
Whether consolidating helps is not obvious
Rolling higher-interest debt into a mortgage changes the rate on that portion, and it usually extends repayment over the remaining amortization. Monthly payments and total interest paid can move in opposite directions. Whether the trade-off makes sense depends on the specific numbers.
Consolidation paths, and what each one involves
Which path is available depends on loan to value, income, credit and the current lender. These are the options that commonly come up. Not all will apply to any given file.
Conventional Refinance
Where income, credit and loan to value fit a chartered bank's parameters, a refinance may add the debt to the mortgage balance at the mortgage rate. It usually involves costs such as an appraisal and legal fees, depending on the lender and the product, and in some cases a prepayment penalty if a term is broken early. The rate applied to the consolidated portion changes, and so does the period over which it is repaid, so total interest on that debt has to be worked out for the specific numbers rather than assumed.
B-Lender Refinance
Where a chartered bank's criteria do not support the refinance, whether because of credit history, income type or loan to value, some alternative lenders that are regulated financial institutions may consider different qualifying criteria, depending on the lender's program and a full application. Pricing is set by each lender and typically differs from a chartered bank, and lender fees may apply. Whether consolidating changes the monthly payment or the total cost depends on the lender, the terms and the full application, so both belong in the comparison.
HELOC Instead of Refinancing
Where a mortgage is already with a chartered bank and there is equity, a HELOC, or home equity line of credit, may serve a similar purpose without changing the mortgage. The line is drawn on to pay off the higher-rate debt and the balance is then carried at the HELOC rate, typically prime plus a margin. It still requires income and credit to qualify, and may not be available if circumstances have changed since the mortgage was set up.
Private lending is out of scope here
Where neither a chartered bank nor a regulated alternative lender is available, people sometimes ask about private mortgages. Private mortgages are outside the scope of a Level 1 mortgage agent, so they are not arranged here and no terms or costs for them are quoted on this site. A file that appears to fit only a private lender is referred to a licensed mortgage broker at Centum Financial Services Limited Partnership, who is the person accountable for that advice.
What people usually ask about debt consolidation
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