How much can you save by consolidating debt into your mortgage? 3 worked examples

Short answer: A debt consolidation mortgage in Canada can save you a lot, or very little, depending on how you do it. In the three illustrations below, rolling credit cards, a car loan and a line of credit into a mortgage cut monthly payments by roughly $700 to $1,200. The total saving ranged from about $10,300 to essentially nothing, and in one case consolidating didn't make sense at all.

The difference comes down to the cost of refinancing, how long you take to repay the debt you moved, and what you do with the monthly savings. FCAC puts it simply: consolidating high-interest debt into a lower-interest product may save you money, but a longer repayment period can cost more in interest over time ^[1].

All numbers below are illustrative, not offers or current rate quotes. Rates are assumptions chosen for the examples; payments use semi-annual compounding for mortgages and monthly compounding for consumer debt.

How a debt consolidation mortgage works

You replace your current mortgage with a larger one (a refinance) and use the extra funds to pay off higher-interest debts such as credit cards, lines of credit or car loans. You're left with one payment at a mortgage rate, which is usually lower than unsecured debt because your home secures the loan ^[2].

What you need to qualify:

• Equity: you can usually borrow up to 80% of your home's appraised value, minus what you already owe ^[2].
• Income: lenders look at your debt ratios. According to CMHC, housing costs generally shouldn't exceed about 39% of gross income, and total debt payments about 44% ^[4].
• The stress test: for most new uninsured mortgages, federally regulated lenders qualify you at the greater of your contract rate plus 2% or 5.25% ^[3].
• Costs: expect legal, appraisal and title fees ^[2], plus a prepayment penalty if you refinance before your term ends ^[5].

Run your own numbers first. Our debt consolidation calculator shows your new payment and how much interest you could save.

Example 1: Consolidating $30,000 of credit cards at renewal

The situation (illustrative): your mortgage is up for renewal with $400,000 owing and 20 years of amortization left. You also carry $30,000 on credit cards at 19.99% and pay $900 a month toward them. Because you're at renewal, there's no prepayment penalty ^[5]. Adding money to the mortgage is a refinance, so we assume about $1,500 in legal and appraisal costs, added to the loan. The renewal rate is assumed at 4.49%.

What it shows: your total monthly outlay drops from about $3,420 to about $2,718, which frees roughly $700 a month. But if you simply let the $30,000 ride for 20 years, you pay more in total than you would have on the cards. Keep sending the old $900 to the mortgage, through a shorter amortization or your prepayment privileges, and you save about $10,300 and finish about a year sooner.

Example 2: Consolidating $60,000 mid-term, with a penalty

The situation (illustrative): your home is worth $750,000. You owe $420,000 on a variable-rate mortgage at 4.20% with 22 years left, and you're partway through the term. You also have:

• a $20,000 car loan at 8.49% with 4 years left ($493/month)
• a $15,000 line of credit at 10.45% (paying $350/month)
• $25,000 on credit cards at 19.99% (paying $750/month)

Many variable-rate mortgages charge three months' interest to break (check your contract); we assume that method ^[5], roughly $4,410 here, plus an assumed $1,800 for legal, appraisal and discharge costs ^[2][6]. The new mortgage is about $486,200, or about 65% of the home's value, at the same 4.20% over 22 years.

Now look at five years out, counting everything you paid plus what you still owe:

What it shows: the penalty and fees absorb most of the interest saving in the first few years. The main benefit here is breathing room in your monthly budget. If you can return part of the relief to the mortgage, the numbers move clearly in your favour. If you can wait for renewal, the penalty disappears and the case gets stronger.

Example 3: When consolidating doesn't pay

The situation (illustrative): you have a fixed-rate mortgage with two years left. Your lender quotes an interest rate differential (IRD) penalty of $9,000, and you'd pay about $1,800 in other costs. Your debts are an $18,000 car loan at a 1.99% promotional rate with 30 months left, and $4,000 on a credit card you can pay off at $500 a month.

What it shows: fixed-rate penalties can be large. FCAC's own example shows an IRD of $12,000 compared with three months' interest of $3,000 on a $200,000 balance ^[5]. Here, it's better to pay the card from cash flow, keep the low-rate car loan, and revisit at renewal, when there's no penalty.

Debt consolidation options compared

If your situation calls for a lender outside the big banks, see what to expect in our guide to private mortgage refinance fees in Ontario.

Five ways to make consolidation actually save money

1. Time it with your renewal to avoid a prepayment penalty ^[5].
2. Use prepayment privileges before you break. FCAC notes a lump-sum prepayment before breaking can lower a penalty, since it's based on a lower balance ^[5].
3. Ask who pays the costs. FCAC suggests asking a new lender whether it will cover some or all of your switching costs ^[7]; get every fee in writing.
4. Don't stretch the amortization more than you need. FCAC cautions that extending it to lower payments raises your interest costs, possibly by thousands or tens of thousands of dollars ^[7].
5. Close or lower limits on paid-off cards if you think you'll be tempted to use them. FCAC warns that keeping the same spending habits leads to more debt ^[1].

Is it right for you?

Consolidating into your mortgage tends to work best when you have mostly high-interest debt (credit cards, high-rate lines of credit), enough equity to stay at or below 80% of your home's value, income that qualifies under the stress test, and a plan to repay the consolidated amount within a few years.

It's less likely to help when the debts are small or low-rate, when a large fixed-rate penalty applies, or when the main problem is spending rather than interest. In those cases a budget, a balance transfer, or a conversation with a credit counselling agency may be a better first step ^[1].

From our desk: The clients who come out furthest ahead treat the lower payment as a tool, not a raise. They set up an automatic extra payment the day the refinance closes.

Consolidating debt into your mortgage can save thousands or barely break even. The deciding factors are your penalty, your costs and how quickly you repay the debt you moved. Run the numbers with your real balances, compare it with a HELOC or waiting for renewal, and decide what you'll do with the monthly savings before you sign.

Learn more: see how debt consolidation with 8Twelve works, or compare a full mortgage refinance.

This article is for general information only and isn't financial, legal or tax advice. Rates, products and terms change without notice and are available on approved credit (OAC). The rate and terms you qualify for depend on your individual financial situation, including credit, income, property and loan-to-value. "Best rates" means the most suitable options available for your situation, not a guarantee of the lowest rate. Example rates and payments are for illustration only, as of October 2026, and are not an offer. 8Twelve Mortgage arranges mortgages through 65+ lenders and does not lend directly. Licensed across Canada — see our licences.

Consolidating unsecured debt into your mortgage may lower your monthly payment but can increase the total interest paid over the amortization period. All examples use assumed rates, balances, penalties and costs for illustration only; your actual penalty, fees and rate will differ. Payments are rounded.