Want to Use Your Equity to Pay Off Debt in 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.

Click here to schedule a call with our team to consolidate your debt.

Debt can sneak up on anyone. Whether it's multiple credit cards, personal loans, or other unsecured debts, managing numerous payments every month can feel overwhelming. The stress of juggling these obligations is not just financial; it can impact your peace of mind, relationships, and overall quality of life. Luckily, if you're a homeowner, there is an effective, straightforward solution: using your home equity to consolidate debt.

Benefits of Debt Consolidation

Debt consolidation involves combining multiple debts into a single payment. Instead of juggling several creditors and payment dates each month, you consolidate these into one manageable monthly payment. This doesn't just simplify your life; it also offers several substantial benefits:

Better monthly cash flow: Consolidating at a lower interest rate and spreading out payments over a longer term significantly reduces your monthly payments, providing breathing room in your budget. The majority of our clients pay up to 50% less monthly and significantly improve their monthly cash flow.

Lower interest rates: Interest rates on home equity loans or HELOCs are generally much lower than rates for credit cards or unsecured loans, substantially reducing your interest costs.

Improved credit rating: Consolidating and paying off high-interest debts quickly boosts your credit score within just a few months.

Easier financial management: One payment each month is simpler and clearer than multiple payments scattered throughout.

What Does Using Your Home Equity Mean?

Home equity is simply the difference between the market value of your home and what you owe on your mortgage. For instance, if your home is worth $1,000,000 and your remaining mortgage balance is $550,000, your home equity is $450,000. Financial institutions and most lenders are only allowed to lend up to 80% of the property's value minus any existing mortgages.

Equity Available for Borrowing = Current Market Value of Home * 0.80 - Outstanding Mortgage Balance

Lenders might lend up to $250,000 in the example above with a $1M home and a $550,000 mortgage,

This equity isn't just a number—it represents real financial flexibility. You can convert this equity into cash by refinancing your mortgage, obtaining a home equity loan, or opening a home equity line of credit (HELOC).

Alternatives to Debt Consolidation with Home Equity

Before considering debt consolidation as homeowners, you should also consider its alternatives:

Balance Transfer Credit Cards: Some cards offer introductory low rates (often 0% for a short period). However, if you can't pay off the balance quickly, these rates increase significantly.

Personal Loans for Debt Consolidation: Personal loans at fixed rates can simplify payments. However, rates are usually higher than mortgage products, making them less ideal over the long term.

Consumer Proposals and Bankruptcy: These are typically a last resort, severely impacting your credit and limiting future financial flexibility. Using home equity is generally preferable as it allows you to maintain financial stability, preserve your credit rating, and keep ownership of your assets.

Ultimately, home equity consolidation tends to offer the lowest rates and greatest financial relief for homeowners, but exploring alternatives can ensure you choose the best solution for your situation.

Which Types of Debt Should You Consolidate?

Not all debts are equal. High-interest unsecured debts, like credit cards, personal loans, store financing, or car loans, usually make the most sense to consolidate using your home equity. These debts typically have interest rates ranging from 10% to nearly 30%. By consolidating them into a home equity loan or refinancing your mortgage, you can drastically reduce the interest you're paying and simplify your monthly payments.

However, it usually doesn’t make sense to consolidate low-interest debts or debts nearing payoff, such as student loans with government-subsidized rates, small debts you can quickly repay, or loans with prepayment penalties. A good rule of thumb is to consolidate debts where you'll achieve significant savings and simplify your finances.

Can You Consolidate Debt with Bad Credit History?

One advantage of consolidating debt through home equity is that approval isn't solely based on your credit score. If your credit rating is low, traditional banks (prime lenders) may be more challenging to access, but you still have viable options. Many reputable mortgage brokers, like our team, have access to alternative "B lenders" or equity-based lenders who can provide solutions tailored to your circumstances.

While interest rates from these lenders are typically higher, consolidating your debts into a manageable monthly payment can improve your cash flow and even rebuild your credit score over time, eventually qualifying you for better rates.

Impact of Debt Consolidation on Credit Scores

Based on our experience, consolidating your debt using home equity typically improves credit score significantly within about 90 days, provided all your debts are paid off fully and there are no lingering judgments or collections. By paying off unsecured debts, you reduce your credit utilization and demonstrate improved financial management, both of which positively impact your credit score quickly and effectively.

Refinancing vs. Home Equity Loan vs. HELOC

When using home equity to consolidate debt, you have three main options: refinancing, home equity loans, and HELOCs. Each has its unique strengths.

Refinancing: Refinancing means replacing your current mortgage with a new, larger one that includes your existing mortgage balance and the debts you're consolidating. Refinancing makes sense if your current mortgage is nearing its renewal date, allowing you to access lower overall rates and streamline payments.

Home Equity Loan: Often called a second mortgage, a home equity loan provides a lump sum at a fixed interest rate and fixed repayment schedule. It’s ideal for those who prefer predictable payments and straightforward financial planning.

HELOC (Home Equity Line of Credit): A HELOC works like a revolving line of credit. It’s highly flexible—you borrow as you need, repay, and borrow again. However, this flexibility demands discipline. Without careful management, it's possible to overspend, potentially causing more financial issues.

How to Use Your Home Equity to Pay Off Debt

Consolidating debt with your home equity doesn't need to be complicated. Here’s a clear, step-by-step guide to help you through the process.

Step 1: Assess Your Debt

Begin by listing every debt you currently owe. Record the type of debt (credit card, loan, line of credit, etc.), outstanding balance, monthly payments, and interest rates. Understanding exactly what you owe provides clarity on how much debt you’ll need to consolidate and the potential benefits.

Step 2: Assess Your Home Equity

Home equity is simply the difference between your home’s market value and the remaining balance on your mortgage. For example, if your home is worth $700,000 and your remaining mortgage balance is $400,000, you have $300,000 in equity.

Equity Available = Current Market Value of Home - Outstanding Mortgage Balance

In Canada, you can borrow up to 80% of your home's value minus your existing mortgage. This determines how much equity you can access for debt consolidation.

Step 3: Contact a Reputable Mortgage Professional

As a rule of thumb, you should always use a trusted mortgage broker to help you navigate through your qualifications with the numerous lenders and products available in Canada. Broker services are free if your credit and income qualify for refinancing with prime banks. If you don’t qualify with prime lenders, you will need a licensed mortgage broker to help you qualify with B lenders or equity-based lenders.

Debt Consolidation Interest Rates Ontario 2025

Interest rates for debt consolidation vary based on the mortgage product you select and your individual financial situation. In Ontario, as of March 2025, you can generally expect the following:

Mortgage Refinancing (Prime or Non-Prime Banks): If you qualify to refinance your primary mortgage with prime or non-prime lenders, interest rates typically range between the mid-4% to high-5%. Refinancing offers some of the lowest rates available, making it an attractive option if you're comfortable breaking your existing mortgage.

Home Equity Loans: If refinancing your first mortgage isn't an option or you prefer not to break your existing mortgage terms, a home equity loan or home equity line of credit (HELOC) could be suitable. Rates for these products start at around 6.99% and can go up to approximately 12.99%. These rates depend heavily on your loan-to-value ratio (the amount borrowed relative to the home's value), credit score, and income level.

HELOCs from B Lenders: If you have difficulty qualifying with prime lenders due to credit or income, B lenders can offer HELOCs starting at approximately 7.49%. Although higher than prime lender rates, this still provides a viable option for homeowners needing flexible access to funds.

By consulting with a professional mortgage broker, you can clearly understand your rate options and secure the most favorable terms based on your unique situation.

The Importance of Strong Financial Habits

While debt consolidation is an effective tool, it addresses symptoms rather than the root cause. To achieve lasting financial health, it’s essential to understand and modify the habits that led to debt in the first place. Consolidating your debt gives you an opportunity to reset your financial habits. Embrace budgeting, avoid impulse spending, prioritize savings, and monitor your financial goals carefully to maintain long-term financial stability.