Last updated: November 2026
If card and loan payments are eating your paycheque and you own a home, you’ve probably been told to “just roll it into the house.” A home equity loan for debt consolidation can cut your interest rate from around 20% to roughly 5–7%, but it also turns unsecured debt into debt secured by the place you live.
Canadian Debt Relief is an independent Canadian guide to debt relief options — consumer proposals, debt management plans, debt consolidation and bankruptcy — for people who want to understand their choices before they talk to anyone.
What is a home equity loan for debt consolidation?
It is a loan secured by your home that you use to pay off other debts, leaving you with one payment at a lower interest rate. In Canada, it usually takes one of four forms: a refinance of your existing mortgage, a fixed-payment home equity loan, a second mortgage, or a home equity line of credit (HELOC).
Your equity is your home’s market value minus what you still owe on it. The Financial Consumer Agency of Canada (FCAC) lists home equity loans and HELOCs as common ways to “borrow against the equity in your home to pay off your debt,” and warns that consolidation only saves money if you stop adding new debt. For a broader look at all your consolidation choices, see our guide to what a debt consolidation loan is.
How much home equity can you borrow in Canada?
Most lenders let you borrow up to 80% of your home’s appraised value, minus your mortgage balance. A HELOC on its own is capped at 65% of the home’s value, according to the FCAC’s 2026 guide to borrowing against home equity.
For example, on a $500,000 home with a $300,000 mortgage, 80% of the value is $400,000, so the most you could borrow on top of the mortgage is about $100,000. Lenders still check your income, credit score and the federal stress test. Rates are tied to prime, which rose to 4.70% at Canada’s major banks on October 29, 2026, after the Bank of Canada raised its policy rate. A typical HELOC at prime plus 1% therefore costs about 5.70%.
What are the benefits?
What are the risks and downsides?
Who should consider it?
- Have at least 20% equity after the new borrowing and steady, provable income.
- Can afford the new payment comfortably, even if rates rise by 1–2 percentage points.
- Have dealt with what caused the debt and plan to close or lower limits on paid-off cards.
Who should avoid it?
- Already struggle to make your mortgage payment or have missed payments in the last year.
- Have an unstable income, a pending job loss or a relationship breakdown that may force a sale.
- Would need a private or second-mortgage lender charging 10%+ plus broker and lender fees.
If repaying everything in full isn’t realistic, a debt management plan or a consumer proposal may reduce what you pay without putting your home up as security. Our article on why a DMP may beat tapping home equity walks through that comparison.
How much could you save?
On $40,000 of credit card debt at 20.99%, paying it off in five years costs about $1,082 a month and roughly $24,900 in interest. Consolidating the same $40,000 into a home equity loan at 5.70% over five years drops the payment to about $768 a month and the interest to about $6,100.
The lower rate only saves money if you keep the term short, and any penalty and closing fees come off the savings. Our guide to hidden fees in consolidation loans lists what to ask about.
How do you consolidate debt with home equity?
It usually takes two to six weeks from application to funding.
- List every debt. Write down each balance, rate and minimum payment.
- Estimate your equity. Multiply a realistic home value by 80% (65% for a stand-alone HELOC) and subtract your mortgage balance.
- Check your mortgage terms. Ask your lender for the prepayment penalty to refinance now and whether you can add a HELOC or second loan without breaking the mortgage.
- Compare at least three offers. Compare rate, term, fees and fixed versus variable, applying within a short window to limit the credit score impact.
- Complete the appraisal and legal work. The lender orders an appraisal, and a lawyer or notary registers the new charge on your title.
- Pay off the debts directly. Ask the lender to pay creditors directly where possible, then confirm each balance shows $0.
- Lock in the habit change. Close or lower limits on the paid-off cards and set up automatic payments above the minimum.
Ready to see if you qualify?
Frequently asked questions
Is a home equity loan a good way to consolidate debt in Canada?
A home equity loan is a good way to consolidate debt in Canada when you have stable income, at least 20% equity left afterward, and you choose a short fixed term. For example, $40,000 of card debt at 20.99% moved to a home equity loan at 5.70% over five years saves roughly $18,800 in interest, but only if you don’t run the cards back up.
What is the difference between a home equity loan and a HELOC for debt consolidation?
A home equity loan gives you a lump sum with fixed payments that pay off the debt by a set date, while a HELOC is a revolving line of credit, usually variable-rate, with interest-only minimum payments. The FCAC caps a stand-alone HELOC at 65% of your home’s value, and on a $40,000 HELOC balance at 5.70% the interest-only minimum of about $190 a month never reduces what you owe.
Can I get a home equity loan with bad credit in Canada?
Yes, Canadians with bad credit can often get a home equity loan, but usually from a private or second-mortgage lender at roughly 8–15% interest plus lender and broker fees of 1–3% of the loan. On a $40,000 loan, those fees alone can add $400–$1,200, so compare that total cost with options like a bad credit consolidation loan or a debt management plan.
Does consolidating debt into my mortgage hurt my credit score?
Consolidating debt into your mortgage usually causes a small, short-term dip from the credit check and new account, then often helps your credit score as card balances fall to zero and your utilization drops. Unlike a consumer proposal or bankruptcy, it adds no negative note to your report.
What happens if I can’t make my home equity loan payments?
If you can’t make your home equity loan payments in Canada, the lender can eventually start power of sale or foreclosure proceedings, because the loan is secured by your home. Contact your lender as soon as you fall behind to ask about a deferral or longer amortization.
After 20 years of structuring multi-million dollar corporate debt facilities and corporate turnarounds in investment banking, Marcus now leads Canadian Debt Relief to apply those exact same balance-sheet optimization frameworks to Canadian household debt.
