A consolidation mortgage is one of several ways to deal with debt. Depending on how much you owe and how much equity you have, another option might fit better.
Debt consolidation mortgage
- How it works: pay debts in full using home equity
- Best for: homeowners with enough equity and income, where high interest is the main problem
- Credit impact: usually positive over time
- Risk: debt becomes secured by your home
Non-profit credit counselling
- How it works: budgeting help, and sometimes a debt management plan where creditors may reduce or stop interest and you repay in full through one payment
- Best for: manageable debt that needs structure, especially without home equity
- Credit impact: a debt management plan is usually noted on your credit report for a period
Consumer proposal
- How it works: a legal arrangement through a Licensed Insolvency Trustee to repay part of your unsecured debt
- Best for: debt that’s too large to repay in full
- Credit impact: significant, for a period of years
- Your home: usually kept, though equity can affect what you offer
A quick illustration
Round numbers, for illustration only: with $30,000 of card debt and $100,000 of available equity, consolidation usually costs least. With $90,000 of unsecured debt, little equity and a tight budget, a consumer proposal may be the more realistic path.
Bankruptcy
For some people, debt is beyond what any of these options can handle. A Licensed Insolvency Trustee can explain bankruptcy as well as a consumer proposal. It’s a serious step with significant consequences, including for homeowners with equity, so get a full explanation before deciding.
Watch for unlicensed “debt help”
Only Licensed Insolvency Trustees can file consumer proposals and bankruptcies. Be cautious with companies that charge upfront fees to “settle” your debts or that promise outcomes before reviewing your situation. Non-profit credit counselling agencies typically offer free initial advice.
How to choose
- Can you realistically repay everything? If yes, consolidation or counselling.
- Do you have enough equity? If yes, consolidation may be cheapest. See equity needed.
- Is the debt beyond what you can repay? Talk to a Licensed Insolvency Trustee.
Getting advice from a broker and a trustee or credit counsellor gives you the full picture.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.