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Consolidating Debts Into Your Mortgage

Consolidating Debts Into Your Mortgage

Consolidation3 min readFebruary 11, 2026
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Mortgage debt consolidation involves rolling multiple high-interest debts (credit cards, personal loans, lines of credit) into a single payment integrated into your mortgage. In Canada, this strategy is governed by OSFI rules (Guideline B-20) that cap refinancing at 80% of the property's market value. The primary advantage lies in the significant interest rate reduction: moving from 19-29% on credit cards to a mortgage rate of 4-6% represents substantial savings. A single monthly payment also simplifies budgeting. However, this approach carries major risks. Amortizing consumer debts over 25 years can increase total interest costs even at a lower rate. Over-indebtedness may recur if spending habits do not change, a pattern that AMF-certified mortgage brokers in Quebec frequently observe. Prepayment penalty fees, legal fees, and appraisal costs must be factored into the calculation. The AMF and the LDPSF require brokers to assess the client's complete financial picture before recommending this debt restructuring strategy.

Consolidating Debts Into Your Mortgage: A Strategy That Requires Careful Évaluation

Mortgage debt consolidation is one of the most common reasons Quebecers contact a mortgage broker. Faced with accumulating credit card balances at 19-29%, personal loans at 8-12%, and variable-rate lines of credit, rolling everything into a single mortgage at 4-6% seems like an obvious solution. However, this restructuring strategy is not always a commonly preferred option and must be evaluated on a case-by-case basis.

How Mortgage Consolidation Works

The principle is straightforward: when refinancing your mortgage, you borrow an amount greater than your current balance. The difference is used to pay off your consumer debts. Your old mortgage balance and your debts are then combined into a single loan, with one monthly payment at a mortgage interest rate. In Canada, OSFI's Guideline B-20 caps the refinancing amount at 80% of the property's market value. For a loan insured by CMHC, Sagen, or Canada Guaranty, refinancing for consolidation purposes is generally not eligible for mortgage insurance, meaning you need at least 20% equity in your property.

When Consolidation Makes Sense

  1. Significant rate gap: Consolidation is particularly advantageous when the spread between your current debt rates and the mortgage rate is significant. Moving from 22% to 5% on $30,000 of debt represents savings of approximately $5,100 per year in interest.
  2. Unmanageable monthly payments: If your combined minimum monthly payments exceed your financial capacity and are causing payment delays, consolidation can reduce the total monthly payment and prevent additional damage to your credit score.
  3. Accelerated repayment plan: Consolidation works best when you commit to maintaining the same total payment as before consolidation. The surplus above the new minimum payment goes toward paying down principal faster, thereby reducing total interest costs.
  4. Commitment to changing habits: Consolidation is only truly beneficial when accompanied by a change in credit spending habits. Experienced brokers too often see clients who consolidate and then re-accumulate debts on the freed-up cards.

Risks to Consider

The most insidious risk is the extended amortization period. A $20,000 credit card debt repaid over 4 years at 20% costs approximately $9,200 in interest. The same debt amortized over 25 years at 5% costs approximately $14,700 in interest. The lower rate does not compensate for the longer amortization. Furthermore, by converting unsecured debts into mortgage debt, you are putting your property up as collateral. Defaulting on a credit card does not lead to losing your home; defaulting on your mortgage does.

Refinancing Costs in Quebec

  • Prepayment penalty: the greater of three months' interest or the interest rate differential (IRD). This penalty can amount to several thousand dollars.
  • Notary fees: in Quebec, refinancing requires a notary for preparing and registering the mortgage deed. Expect $1,000 to $2,000.
  • Appraisal fees: the lender generally requires a professional property appraisal, costing $300 to $500.
  • Discharge fees: if you are switching lenders, the old mortgage must be discharged, resulting in additional notary costs.
  • Application fees: some lenders charge file opening fees, though many absorb them to remain competitive.

Advice for Quebec Borrowers

Before proceeding with consolidation, ask your AMF-certified mortgage broker to prepare two detailed projections: the total cost of your current debts if you repay them under an accelerated plan, and the total cost after consolidation with different repayment scenarios. Compare the numbers over the same period. Also make sure you fully understand the exit costs from your current mortgage, as the prepayment penalty can eliminate a significant portion of the expected savings. Under the Civil Code of Quebec (CCQ), a real estate mortgage is a real right that encumbers your property, and it is essential to understand the legal implications of increasing the secured amount.

Frequently Asked Questions

What is the maximum amount I can consolidate into my mortgage?
In Canada, OSFI's Guideline B-20 limits refinancing to 80% of your property's market value. For example, if your home is worth $400,000 and your mortgage balance is $250,000, you could potentially access $70,000 ($320,000 minus $250,000) for debt consolidation, subject to qualification.
Will debt consolidation affect my credit score?
In the short term, the refinance generates a hard credit inquiry that may lower your score by a few points. However, over the medium term, consolidation can improve your score by reducing your credit utilization ratio and eliminating missed minimum payments. The key is not to reuse the freed-up credit lines.
What fees are associated with consolidation through refinancing?
Fees include the prepayment penalty (often the interest rate differential or three months' interest), notary legal fees ($1,000 to $2,000 in Quebec), property appraisal fees ($300 to $500), and possibly discharge and new mortgage registration fees.
Will I pay more total interest by consolidating?
It is possible. Even though the rate is much lower, spreading credit card debt over 25 years instead of 5 years can cost more overall. The key is to accelerate payments once the debts are consolidated. Ask your broker to calculate total costs under different repayment scenarios.
Can my mortgage broker refuse the consolidation?
An AMF-certified broker has a professional duty to act in your best interest under the LDPSF. If they believe consolidation could worsen your financial situation, they can and should recommend an alternative, such as consulting a financial recovery advisor or considering a consumer proposal.

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Educational information only. This does not constitute financial advice under the Act Respecting the Distribution of Financial Products and Services (LDPSF). Consult an AMF-certified mortgage broker before making any financial decision.

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