Looking for Debt Consolidation Options Ontario?

360Lending is an award-winning mortgage brokerage based in Richmond Hill, Ontario. Over 2,000 homeowners in Ontario have given us 5-star reviews and we have an A+ rating from the Better Business Bureau.

We help homeowners get the lowest rates for home equity loans, home equity lines of credit, refinancing, and other mortgage products.

To get approved for a debt consolidation loan, click here to schedule a call with our team.

Debt consolidation can be a helpful solution for individuals who are overwhelmed by multiple high-interest debts. The idea is simple: combine all your outstanding debts into one manageable loan, often with a much lower interest rate.

However, while consolidating debt into your mortgage might seem like an attractive option, it's important to understand how it works and whether it’s the right choice for your situation.

What is Debt Consolidation and How Does It Work?

Debt consolidation involves combining several smaller, high-interest debts—such as credit cards, personal loans, and other unsecured debts—into one loan. The main goal of debt consolidation is to reduce the interest rate you’re paying on your debts and simplify your payments by consolidating them into a single monthly installment.

When you consolidate your debt into your mortgage, the new loan will be secured against your home. This typically means a lower interest rate compared to unsecured loans or credit cards. However, this also means you are increasing your mortgage balance, which can have long-term implications for your home’s equity and your future payments.

Homeowners in Ontario can choose from several options to consolidate their debt into a mortgage:

Refinancing

Getting a home equity loan

Getting a home equity line of credit (HELOC)

Each option comes with its own pros and cons, and understanding these differences is crucial for making an informed decision.

Is There a Debt Forgiveness Program in Canada?

Canada does not have a nationwide debt forgiveness program. Instead, individuals struggling with significant debt can explore legally binding debt relief options such as consumer proposals or bankruptcy.

A consumer proposal allows you to settle a portion of your debt with your creditors, while bankruptcy may discharge eligible debts entirely. While these options offer a way to reduce your debts, they come with severe consequences for your credit and future borrowing power.

Consolidating debt into a mortgage, unlike debt relief options like consumer proposals and bankruptcy, allows you to manage your debt while potentially maintaining a better credit score. Refinancing your mortgage or securing a home equity loan can be a way to lower your interest rates and streamline your payments without the long-term credit damage associated with other forms of debt relief.

How to Consolidate Debt Into a Mortgage Canada

The process of consolidating debt into your mortgage in Ontario typically involves either refinancing your current mortgage or securing a home equity loan or HELOC. These methods allow you to use your home equity—essentially the difference between your home’s market value and your remaining mortgage balance—to pay off high-interest debts.

Mortgage Refinancing: The most straightforward way to consolidate debt into a mortgage is through refinancing. When you refinance, you increase your current mortgage balance and use the extra funds to pay off outstanding debts. This can be particularly effective if you have significant equity in your home. Refinancing allows you to get a new mortgage with a lower interest rate, and the funds you receive can help clear your unsecured debts, such as credit cards or personal loans.

However, there are some things to keep in mind. If you refinance before your mortgage term is up, you may incur a prepayment penalty. Additionally, the bank typically requires at least 20% equity in your home to qualify for refinancing. It’s also important to note that while refinancing can reduce your monthly payments by lowering your interest rate, it may increase the total length of time it will take to pay off your home.

Home Equity Loan (HEL): A home equity loan allows you to borrow a lump sum of money based on the equity you’ve built in your home. This is often used to pay off other debts. Home equity loans usually have lower interest rates compared to credit cards and personal loans, which can save you a significant amount of money over time. However, because the loan is secured against your home, it’s important to ensure that you can handle the new monthly payments to avoid putting your home at risk.

Home Equity Line of Credit (HELOC): Another option is to secure a HELOC, which provides you with a revolving line of credit based on your home’s equity. With a HELOC, you only borrow what you need, and you’re only required to pay interest on the amount you’ve borrowed. This option provides flexibility, as you can use it to pay off debt as needed. However, HELOCs are revolving and require the borrowers to improve their spending habits.

Should You Consolidate Your Credit Card Debt?

If you’re carrying significant credit card debt, consolidating it into your mortgage is often a smart financial move. Credit card interest rates can range 19% to 25% or more, while rates for mortgage products are significantly lower. By consolidating your credit card debt into your mortgage, you can reduce the amount you’re paying in interest each month by up to 50%.

However, consolidating debt into a mortgage isn’t a one-size-fits-all solution. It can be an effective tool for improving your financial situation, but it doesn’t address the underlying causes of debt. If you’ve been accumulating debt due to overspending or poor financial habits, it’s essential to address these issues to avoid getting back into debt in the future.

If you decide to consolidate your credit card debt into a mortgage, be sure to commit to staying debt-free. The temptation to use available credit again can be strong, especially if you consolidate a significant portion of your credit card balances. It’s important to resist the urge to run up new debt, as this can quickly undo the benefits of consolidating your existing debt.

Debt Consolidation Impact on Your Credit Score

Consolidating your debt into a mortgage can have a positive impact on your credit score over time. As your high-interest credit accounts are paid off, your credit utilization ratio improves, which can help boost your score in the long run.

The most significant benefit to your credit score comes from reducing your total credit card balances. Lowering your credit utilization—the ratio of your outstanding credit to your total credit limit—is one of the key factors that affects your score.

Additionally, if you have other types of unsecured debt in collections, consolidating these debts can help improve your credit utilization and reduce the negative impact of those debts on your credit report.

In general, we see our clients credit score improve within 90 days of their unsecured debts being paid.

Does Debt Consolidation Affect Your Mortgage?

Consolidating debt into your mortgage can have several effects on your mortgage itself. While it can provide relief in the short term, it’s essential to consider the long-term implications.

No Impact for Mortgage Renewal: If you choose to consolidate debt through refinancing or a home equity loan, your mortgage renewal will likely be unaffected, as long as you continue making your payments on time. The refinancing or home equity loan simply replaces the old debt with a larger mortgage balance. However, this could affect your ability to secure better mortgage rates in the future if the new balance increases your debt-to-income ratio.

Improved Credit Score and Debt-to-Income Ratio: One of the major benefits of consolidating debt into your mortgage is that it can improve your credit score and lower your debt-to-income ratio (DTI). By paying off high-interest credit cards or other unsecured loans, you reduce your overall debt load, which can make you appear more favorable to future lenders. A lower DTI can also increase your chances of qualifying for more competitive mortgage products, as lenders view you as a lower-risk borrower.

Implications of Refinancing: When you consolidate debt by refinancing your mortgage, the new mortgage balance will include the additional debt. This means you’ll be paying off both your original mortgage and the consolidated debt over the course of your new mortgage term. While this can help you manage your payments better, you may end up with a longer mortgage term or a higher interest rate, depending on the current market conditions.

Debt Consolidation Loan with Bad Credit in Ontario

It’s possible to consolidate debt into a mortgage even if you have bad credit, though your options might be more limited. Here’s how:

Exploring Options with a Mortgage Broker: If your credit score is less-than-ideal, working with a mortgage broker is essential. Brokers have access to a wide range of lenders, including alternative lenders who specialize in working with clients who have less-than-perfect credit. They can help you find a mortgage product that suits your situation and ensure you get the best terms available to you.

Home Equity Loan or HELOC: Even if your credit score is low, you may still qualify for a home equity loan or HELOC if you have enough equity in your home. These loans are secured by your property, which can make them easier to qualify for than unsecured loans. While the interest rates on home equity loans and HELOCs may be higher for individuals with bad credit, they are still much lower than the rates associated with unsecured debts like credit cards.

Improved Credit After Consolidation: Once you’ve consolidated your unsecured debts into your mortgage, your credit score is likely to improve within 60 to 90 days. This happens because your credit utilization ratio will drop as your credit card balances are paid off. Additionally, you’ll be able to focus on making consistent mortgage payments, which can help strengthen your credit profile over time.

Debt Consolidation Loan with No Income in Canada

If you have no income, securing a traditional debt consolidation loan may be difficult. Lenders typically assess your income to ensure you can repay the loan. However, there are still options available if you are a homeowner with equity in your property.

Equity-Based Lending Options: If you have significant equity in your home, some lenders may approve a home equity loan or HELOC based on the value of your property rather than your income. This is known as equity-based lending and can be a lifeline for those who may be in between jobs or experiencing a temporary loss of income.

Debt Consolidation with a HELOC

Using a HELOC to consolidate debt is one of the most popular options for Ontario homeowners. A HELOC is a revolving line of credit secured against the equity in your home. It allows you to borrow up to a certain limit, and you only pay interest on the amount you use.

A HELOC is beneficial for debt consolidation because it typically comes with lower interest rates compared to credit cards and personal loans. It’s also a flexible option, allowing you to borrow as needed and pay off the debt in a way that fits your budget. However, since HELOCs have variable interest rates, your monthly payments could fluctuate depending on market conditions.

Should You Consolidate Debt into Your Mortgage?

Consolidating debt into your mortgage can be an effective way to reduce your monthly payments and save money on interest. However, it’s not without its risks and considerations. Before moving forward with any of the options we’ve discussed, ask yourself the following:

Are you committed to avoiding new debt accumulation?

Do you have enough equity in your home to qualify for a home equity loan or HELOC?

Will the new monthly payment fit comfortably within your budget?

By working with a mortgage broker and understanding the options available, you can make an informed decision about whether debt consolidation through a mortgage is the right strategy for your financial future.

Consolidating debt into a mortgage can provide relief for homeowners who are struggling with high-interest debts. Whether you choose to refinance, obtain a home equity loan, or use a HELOC, the key is to choose the right option for your financial situation and long-term goals. Always consult a mortgage professional to ensure you’re making the best decision for your needs.