Rolling credit cards, car loans or lines of credit into one lower-rate payment can ease monthly cash flow. It can also cost more in the long run. These five questions are for homeowners and renters weighing a consolidation loan, a line of credit or a mortgage refinance to deal with high-interest debt.
1. What will it cost in total, not just per month?
The Financial Consumer Agency of Canada warns that consolidation "may extend your repayment period, costing more in interest over time" (FCAC, debt consolidation). A lower payment is not the same as a lower cost.
Hypothetical example. Assume $30,000 of credit card debt at 19.99%, paid off over five years with fixed monthly payments: about $794.65 a month and roughly $17,679 in interest. If the same $30,000 is added to a mortgage at an assumed 4.5% fixed rate (compounded semi-annually) and repaid over 25 years, the payment drops to about $166.04 a month, but total interest on that $30,000 is roughly $19,813, more than the card would have cost. Repaid over five years at 4.5%, the payment is about $558.72 and interest about $3,523. Figures exclude penalties and fees and assume rates do not change.
The lesson: consolidating into cheaper debt saves the most when you keep the repayment period short.
2. Which option fits your situation?
FCAC describes several routes, each with trade-offs (FCAC):
- Consolidation or personal loan: fixed payments and a set end date. Your credit history sets the rate, which may not be lower than what you pay now.
- Line of credit: interest only on what you use, usually at a variable rate, but easy to draw on again.
- Balance transfer card: a low or 0% promotional rate that usually lasts 6 to 18 months, normally with a transfer fee.
- Home equity: a HELOC, a second mortgage or a refinance. FCAC notes a HELOC can be up to 65% of your home's value, and that you can usually borrow up to 80% of your home's value in total (FCAC, borrowing against home equity).
Home equity options often carry the lowest rates, but they put your home on the line if payments become a problem.
3. What fees and penalties apply?
Borrowing against home equity can involve appraisal, title search, title insurance and legal fees (FCAC). Refinancing in the middle of a closed term can also trigger a prepayment penalty, which on a fixed-rate mortgage may be substantial. Estimate it with the mortgage penalty calculator and ask your lender for the exact figure in writing before you decide. Add every cost to the comparison in question 1.
4. What will stop the debt from coming back?
FCAC is blunt: "If you keep the spending habits that caused your debt, you'll accumulate more debt." Consolidation frees up credit limits. Before you sign, decide what happens to the paid-off cards, whether to lower limits, and what budget will keep balances at zero. If you choose a line of credit, set a fixed monthly repayment rather than paying interest only.
5. Is the provider legitimate and licensed?
Regulation of debt consolidation companies varies by province and territory, and FCAC advises caution with companies offering credit repair or debt help. Avoid anyone charging large upfront fees or promising to erase debt. If a mortgage is involved, confirm the broker or lender is licensed using the steps in our guide on how to check a mortgage broker's licence. Also limit applications: several credit applications in a short period may lower your credit score.
Next step
Run your own numbers through the debt consolidation calculator, then compare at least two options on total cost, including fees and penalties. A licensed mortgage broker can show whether a refinance, HELOC or second mortgage makes sense next to an unsecured loan.
Sources
- Financial Consumer Agency of Canada, Debt consolidation, 2025-10-14. Accessed 2026-11-04.
- Financial Consumer Agency of Canada, Borrowing against home equity, 2025-10-15. Accessed 2026-11-04.
General information only, not financial advice. The example is hypothetical; your rates, fees and penalties will differ. If you are struggling with debt, a non-profit credit counselling agency can help you review options. Mortgage Directory does not verify or endorse listed professionals.
