Refinancing a Mortgage to Pay off Debt

Posted on 14th March 2017

Refinancing a Mortgage to Consolidate Your Debt

Is it a good idea to refinance a mortgage to pay off credit card debt? If you own a home and have more than 20% equity in the property and are saddled with credit card debt, student loan debt, or other consumer debt, it might be time to refinance and consolidate your debt.

Why? Mortgage rates continue to be near record lows while interest on consumer credit cards can be in excess of 25%. Moreover, credit card debt is a problem for a lot of Canadians. Canadians now owe $1.67 for every dollar the earn. At the end of 2016, the average credit card balance was up 2.3% year over year at $4,094.1

While everyone knows they have to eventually pay that debt off, many are not aware that they cost of carrying that debt is going to rise. Interest rates are expected to gradually rise with debt serving costs projected to rise to 16 cents for every $1.00 of income by the end of 2017—it is currently at 14 cents. This may not sound like a lot, but it would represent a new record high. Unfortunately, this increase comes at a time when wage growth is almost non-existent.

A lot of Canadians burdened with high-interest credit card debt think the best way to settle the issue is through bankruptcy. But bankruptcy should only be considered as a last resort. Other debt relief ideas that you should avoid are payday loans, transferring the debt to another credit card, or cashing in your Registered Retirement Savings Plan (RRSP).

With interest rates on mortgages near record lows, it’s a much better idea to consolidate debt by obtaining a refinance mortgage. By taping the equity you’ve built up in your home, you will end up with a single monthly payment with a significantly lower interest rate. This will allow you to pay off your credit card debt much more quickly, free up hundreds of dollars in cash flow each month, and save thousands in unnecessary interest payments.

Advantages of Refinancing a Mortgage to Pay off Debt

There are a number of advantages to refinancing a mortgage to pay off your high-interest credit card and even car loan debt.

Lower Fixed-Interest Rates

The interest rates on a refinanced mortgage will be lower than the interest you pay monthly on a credit card. While refinancing a mortgage to pay down debt means you will owe more on your mortgage, because of thelower interest rates, you will also free up cash—which you can put down on the mortgage to help pay off your mortgage more quickly and build up additional equity.

Single Monthly Payment

Not only does refinancing a mortgage to consolidate credit card debt simplify your finances by moving to one easy, monthly payment, it also leaves you with just one loan at a lower interest rate.

Improved Credit Score

Even if your credit is bruised, paying off your high-interest debts when you refinance a mortgage can actuallyimprove your credit rating. That’s because Canada’s credit bureaus see payment in full as a sign that you are good at handling credit card debt.

An Example of Refinancing to Consolidate Debt

Refinancing a mortgage to pay down credit card debt will mean that your mortgage is a little larger, but it’s better to pay a lower interest fee over the long-run than a high-interest fee for an indeterminate amount of time.

Monthly payment on $245,000 mortgage: $1,650
Monthly payment on $15,000 credit card debt: $500.00
Total monthly payment: $2,150

Monthly payment on $270,000 mortgage (debts + early payout penalty): $1,740
Total monthly payment: $1,740

That’s $410.00 more in your pocket each month. How you use that extra money is up to you. You can make an extra payment on your mortgage, which could reduce your amortization period by a number of years. Or you could put that money into an RRSP or RESP which also means additional tax benefits. Or you could stow it away into an emergency fund.

Tips to Refinance a Debt Consolidation Mortgage

If you want to refinance your mortgage to consolidate credit card debt, make sure you do it right. That means doing research on your personal finances, reviewing your spending habits, and talking through the options with an independent, licensed, mortgage expert. Below are some top tips to consider when consolidating debt with a mortgage refinancer:

  • Review your mortgage and determine the advantages and disadvantages
  • Calculate fees associated with the loans you are considering
  • Compare interest rates; will they be fixed or variable?
  • Should you consolidate all of your debts or loans into the mortgage refinance?
  • How long will you be in the home you are taking a refinancing loan on?
  • Do the long-term savings outweigh the initial outlay?, Helping Canadians Refinance and Save

If you’re finances are stretched because of credit card and other consumer debt, a debt consolidation refinance loan might be the best road to take. That being said, a debt consolidation refinance loan is a big commitment and something that you need to consider carefully. If you’re looking to roll your credit card debt into a new mortgage, contact a licensed mortgage professional at

The independent agents at will help evaluate your financial situation and consider all of your options. To find out if refinancing or breaking your mortgage to pay off credit card debt is right for you, contact today.

Or apply online and a lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.


1.“Pigged out on debt? Remember you have to pay for it, RBC warns,” The Globe and Mail, March 3, 2017;

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