Looking to Consolidate Debt as a Homeowner in Ontario?

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If you’re feeling overwhelmed by credit card bills, personal loans, or other high-interest debts, you’re definitely not alone. Many Canadians are in the same boat—juggling multiple payments and watching interest pile up faster than they can pay it down. That’s where your home equity might offer a smart solution.

Consolidating debt using your home equity is a strategy that can save you thousands of dollars in interest, simplify your finances, and even help rebuild your credit. But how does it actually work? And is it the right move for you?

Consolidating Debt Using Home Equity Explained

When we talk about using your home equity to consolidate debt, we’re usually talking about two main options: a home equity loan or a home equity line of credit (HELOC).

Both of these allow you to borrow against the value of your home. The idea is to take the money from that loan or line of credit and use it to pay off higher-interest debts, like credit cards, payday loans, or unsecured lines of credit. After that, you’re left with just one monthly payment— at a much lower interest rate and payment.

Home Equity Loan: A lump sum with a fixed interest rate and fixed payments over a set term.

HELOC: A revolving line of credit, where you can borrow as needed and pay interest only on what you use.

How Much Can You Borrow for Debt Consolidation?

In Canada, most lenders allow you to borrow up to 80% of your home’s appraised value, minus what you still owe on your mortgage. That amount is your available equity.

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

Your home is worth $700,000

You owe $400,000 on your mortgage

80% of $700,000 = $560,000

$560,000 - $400,000 = $160,000 available to borrow

Of course, the exact amount you can borrow also depends on your income, credit score, and which lender you go with. A mortgage broker can help you figure this out accurately.

Is Debt Consolidation a Good Idea? Here's the Math

The biggest reason people consolidate debt using home equity is to save money—specifically on interest.

Here’s a comparison:

Credit cards: Often 19.99% or more

Personal loans: Typically 13% and up

Home equity loan: Starts at 6.99%

HELOC (from a B lender): Starts at 7.49%

Let’s say you owe $50,000 on credit cards at 20% interest. Credit cards generally require a minimum monthly payment that's close to 2% to 2.5% of your outstanding balance, or $1,250 per month. A home equity loan at 9.99% (currently rates start at 6.99%) will cost you less than $500 per month.

Paying out $50,000 in credit card debt this way can save you $750 per month or $9,000 per year.

What About Consolidating with a Personal Loan?

Personal loans are unsecured, meaning they’re not backed by anything. Because of that, lenders charge higher interest rates to protect themselves in case you can’t pay. Home equity loans and HELOCs, on the other hand, are secured by your property. That makes them less risky for lenders, which is why the interest rates are lower.

In short, personal loans are smaller, have higher interest rates, and can be harder to get with damaged credit.

How to Consolidate Debt Using Home Equity

The best way to consolidate debt using your home equity is by working with a mortgage broker—especially one who understands your financial situation and has access to both traditional and private lenders.

Here’s how the process works:

Step 1: Speak with a Mortgage Broker

A broker will ask about your debts, income, credit score, and current mortgage. They’ll also calculate how much equity you have and which option makes the most sense (HELOC, home equity loan, or second mortgage).

Step 2: Gather Your Documents

You’ll need:

A recent mortgage statement

Your latest property tax bill

Income documents (like pay stubs or T4s)

Statements for the debts you want to consolidate

Step 3: Get an Appraisal

Your broker will arrange for a professional home appraisal to confirm your property’s market value. This is essential for calculating your borrowing limit.

Step 4: Get Matched with a Lender

Your broker will shop around and present you with options from different lenders—both institutional and private. They’ll look at interest rates, terms, fees, and flexibility.

Step 5: Sign and Close

Once approved, you’ll sign the paperwork through a real estate lawyer. Funds are usually sent to your lawyer first and then used to pay off your existing debts.

Impact of Debt Consolidation on Your Credit Score

One of the biggest myths about debt consolidation is that it hurts your credit score. In reality, consolidating debt with home equity has no negative impact on your score—and in most cases, it actually helps.

Here’s why:

You’re paying off multiple debts, reducing your credit utilization

You’re eliminating late payments, collections, or judgments

You’re left with a manageable, structured repayment plan

Most people who consolidate their debt this way start to see their credit scores improve within 60 to 90 days, as long as they stay on top of their payments and there are no lingering collection items on file.

Risks of Consolidating Debt with Home Equity

The biggest risk is that you’re using your home as collateral. That means if you miss payments or default on the loan, the lender could take legal action—including forcing the sale of your home to recover their money.

Now, most people don’t lose their homes over a home equity loan—but it does happen, especially when people borrow more than they need, or don’t use the money to actually pay off their debts.

That’s why it’s so important to:

Borrow only what you need

Pay off the right debts in full

Avoid running your credit cards back up again

If you treat a home equity loan as a second chance—not a blank cheque—you can avoid the biggest mistakes people make.

Is Debt Consolidation a Good Idea for Homeowners?

For many homeowners, yes—it’s a smart move. Consolidating debt with home equity often leads to:

Lower interest payments

Simplified monthly bills

Improved credit scores

A clear path to becoming debt-free

If you’ve been stuck making minimum payments on high-interest credit cards, or if juggling multiple loans is stressing you out, home equity can give you the breathing room to get back in control.

But it’s not the right fit for everyone. Before you jump in, it’s important to understand the risks—and to make sure you have a plan in place to stay out of debt long-term.