Should You Use Home Equity to Pay Off High-Interest Debt?

You are not the only one watching interest charges grow while debt repayment refuses to shrink. Thousands of Ontario homeowners are caught in a cycle of rising payments and contracting breathing room.

The bills arrive on time, and so do the paycheques. Somehow, though, there is never enough left over, as high interest rates eat into everything.

The pressure affects both your wallet and wears on your peace of mind. However, here is what people often miss: the solution might be built into the walls around you. Tapping into your home equity could turn a slow climb into a lasting debt solution.

Breaking Down Home Equity: What It Is and How You Build It

Home equity refers to the portion of a home that belongs to the owner, not the bank. This value is the difference between what the home could sell for today and the remaining balance on the mortgage.

Here is how the calculation works:

Market Value – Mortgage Balance = Home equity

For instance, a home valued at $850,000 with $450,000 left on the mortgage leaves $400,000 in home equity. The amount can be unlocked and used, depending on the lender and product.

Equity can increase in various ways. For example, with every mortgage payment, the loan goes down. As the property values rise, so does the total value of the home.

In some cases, lower interest rates also help by making accelerated payments more affordable. Over time, equity becomes one of the most powerful financial tools a homeowner can access.

Why High-Interest Debt Is Financially Dangerous

Debt with high interest rates traps people. Credit cards often charge between 19% and 24%. Payday loans can go much higher, sometimes exceeding 40%. Even a moderate balance can become expensive.

If you had a credit card bill of $15,000 at 21% interest, for instance, it would accumulate $260 worth of interest every month and about $3,100 a year, given that you’re not adding more to the bill.

Emotionally, everything feels suffocating. Most monthly payments simply go toward interest, and the principal stays nearly the same.

With time, financial pressure increases, and reaching your goals can seem impossible. It shifts into feeling like your entire monthly savings can evaporate, and your budget no longer works, all while increasing emotional stress.

Compared to unsecured borrowing, equity options tend to offer far lower interest rates, which makes repayment faster and more manageable.

How to Use Home Equity to Pay Off High-Interest Debt

Managing high-interest debt with home equity offers several solutions. Each of them depends on the person’s credit standing, financial goals, and income stability.

• For someone with a stable income and needing predictability, a home equity loan would be most suitable. Using a home equity loan means the borrower gets a lump sum right away. Interest is paid at a fixed rate, and there is a set term with equal monthly payments. Full repayment is made at the end of the term.
• A home equity line of credit (HELOC) works more like a credit card. The borrower gets access to a revolving credit limit that can draw funds when needed. Interest is only charged on the amount used. However, since most HELOCs have variable interest rates, payments can change from month to month.
• A second mortgage is another route. This is a separate loan added on top of the primary mortgage. While the rates are usually higher than a first mortgage, they are still far lower than credit card or payday loan rates. A second mortgage is used when refinancing the original mortgage isn’t ideal.

These options entail balancing risk, cost, and flexibility for faster debt repayment. A licensed broker expert can help you make the right choice.

How Not to Use Your Home Equity

Using home equity without a clear purpose always equals more financial problems. One common mistake is borrowing to fund lifestyle upgrades. Things like expensive vacations, luxury furniture, or a new vehicle may feel rewarding at first—after a while, though, items lose value quickly and create no return.

Another risky habit is borrowing without a good repayment strategy. Every loan needs a timeline, a budget, and a fallback plan. Without these, monthly payments can become a burden.

Ignoring loan conditions is another red flag. Fees, penalties, and changing terms can catch borrowers off guard if they are reviewed closely.

A second mortgage carries added risk. It creates a new debt layer on top of the original mortgage. If income drops or rates rise, repayment becomes tougher. So, tapping into home equity can be helpful, but only when guided by purpose, not impulse.

What the Financial Consumer Agency of Canada (FCAC) Says

The Financial Consumer Agency of Canada (FCAC) takes a clear position on borrowing against home equity. Their advice is not to avoid it, but to use it with caution and understanding.

The agency warns against taking on more debt than can realistically be paid back. This includes second mortgage products, lump-sum equity loans, and HELOCs. The FCAC also points out how rising interest rates affect monthly payments. Variable-rate loans, in particular, can become harder to manage if rates increase suddenly.

To proceed, the regulatory body recommends speaking with licensed mortgage professionals. Expert brokers, for example, can explain costs, risks, and debt repayment timelines before any commitment is made.

Why Work With a Home Equity Broker Like Canadalend

Canadalend is not a bank. We are an independent home equity loan broker in Ontario with access to a wide range of lenders, including many that major banks don’t work with. This gives homeowners more options, even with low credit or non-traditional income.

Our team explains the difference between equity loans, HELOCs, and a second mortgage. Each option is laid out clearly, so there is no confusion around repayment, timelines, or fees.

Personalised support is also a big part of what we do. We assist in comparing interest rates from multiple lenders to ensure the most affordable solution for long-term goals is selected. Applications are then reviewed quickly, and most clients receive decisions faster than banks.

At Canadalend, the process is simple, the advice is honest, and the solutions are structured to reduce stress. Reach out to us today at 1-844-586-0710 or contact us online to speak to our expert brokers and access the best home equity options.

FAQs

Can I access home equity if I’m retired or on a fixed income?

Yes. Many lenders consider property value and the total home equity, not just monthly income. A broker like Canadalend can help find lenders who work with pension or investment-based applicants.

How long does it take to get a home equity loan?

Timelines do vary. With an experienced mortgage broker, approval can take 5 to 10 business days. However, this also depends on the lender and how quickly documents are turned in.

Will borrowing from home equity affect my credit score?

Yes, this can happen. Taking on new credit can create a small dip. However, consistent payments may help improve the score as time goes on.