Refinancing to Reduce Debt

If you're feeling weighed down by high-interest debt — credit cards, personal loans, or lines of credit — you're not alone. Many Ontario homeowners are finding it harder to manage their monthly payments, especially with today’s rising costs. But there’s one powerful tool you may not have considered: refinancing your mortgage to pay off that debt.

Refinancing your mortgage means replacing your current mortgage with a new one — usually with a larger amount. The difference between your old balance and the new one is paid out to you in cash. That cash can then be used to pay off other debts.

In Ontario, lenders typically allow you to borrow up to 80% of your home’s appraised value. So if your home is worth $800,000 and you owe $500,000 on your mortgage, you may be eligible to borrow up to $640,000 — giving you access to $140,000 in equity.

Most unsecured debts (like credit cards or personal loans) charge interest rates between 10% and 25%. Meanwhile, mortgages — even in today’s market — are still priced significantly lower, often in the 4% to 5% range.

For example, let's meet Aman. He had $45,000 in credit card debt, and was paying $1,300/month on just minimum payments. By refinancing and adding that $45,000 into his mortgage, he was able to drop his monthly payment on that debt to $270/month, while actually paying off his debt.

So, is this solution right for you?

Refinancing for debt consolidation might be right for you if:

• You have high-interest credit card, car loan, or personal line of credit debt

• You have enough home equity to cover at least some of your debts

• Your mortgage is coming up for renewal, or the cost of prepayment penalties is lower than your savings from consolidating

• You’re feeling cash-strapped and want to improve your monthly cash flow

Also, note that refinance funds are not taxed — this isn’t income, it’s borrowing. That makes this approach more tax-efficient than using RRSPs or TFSA withdrawals to pay off debt.

Is there a catch?

Refinancing can be powerful, but it’s not for everyone. Keep in mind:

• You’re stretching debt over a longer period – While your monthly payments go down, the overall interest cost may increase if you extend repayment over 25 or 30 years.

• Discipline matters – If you consolidate but continue using debt, especially credit cards, the same way, you could end up back in the same position.

• Prepayment penalties – Breaking a fixed mortgage before maturity can cost thousands. A mortgage agent can help you calculate whether the benefit outweighs the penalty.

That said, for borrowers who have a strategy mapped out, they can find debt freedom and secure their financial future.

If you're curious about whether refinancing makes sense for your situation, reach out today! We’ll go over your mortgage, current debts, and future goals — and walk you through your options for free with expert advice and guidance.