Debt consolidation mortgage, London Ontario

The math, plainly

Debt consolidation isn’t clever. It’s arithmetic. You are replacing expensive money with cheap money, and the only question is whether the cost of the switch is smaller than the saving.

Illustrative comparison: $100,000 of consumer debt

Debt	Balance	Rate	Annual interest
Credit cards	$32,000	21.99%	$7,037
Unsecured line of credit	$45,000	11.20%	$5,040
Vehicle loan	$23,000	8.99%	$2,068
Total, as-is	$100,000	~14.1%	$14,145
Same $100,000 inside a mortgage	$100,000	4.50%	$4,500
Annual interest saved			$9,645

Rates shown are illustrative for comparison, not quotes. That’s roughly $800 a month of pure interest that stops leaving the house. Add the effect of a longer amortization on the required payment and the monthly cash flow swing is usually larger again.

Here’s the part most people miss: the saving only becomes wealth if you keep paying the old amount. If your minimum payments were $2,400 a month and the new mortgage payment adds $560, don’t pocket the $1,840. Put it back at the mortgage as a prepayment. Same money out the door, debt gone in a third of the time, tens of thousands in interest never paid.

The rules in Ontario, 2026

• 80% loan-to-value ceiling. Federal rules cap a refinance at 80% of the appraised value of your home. No exceptions at A-lenders.
• No insured refinances. Default-insured (CMHC, Sagen, Canada Guaranty) mortgages cannot be refinanced for the purpose of taking out equity. If you bought with less than 20% down and still carry insurance, a consolidation refinance means going uninsured.
• Stress test applies. You must qualify at the greater of your contract rate plus two percentage points, or 5.25%, using the new consolidated payment plus property taxes, heat and half of any condo fees.
• Ratios. A-lenders generally want a gross debt service ratio at or under 39% and a total debt service ratio at or under 44%. Alternative lenders go higher, at a price.
• Payout at closing. Your lawyer pays each creditor directly from the mortgage advance. You never touch the money, which is exactly the point.

What it actually costs

Typical closing costs on a debt consolidation refinance

Item	Typical range	Notes
Prepayment penalty	$0 – $20,000+	Three months’ interest on a variable; interest rate differential on a fixed, ask for an exact figure in writing
Appraisal	$400 – $600	Sometimes waived or covered by the lender
Legal fees and disbursements	$1,200 – $2,000	Some lenders offer a free-legal switch, but rarely on a refinance
Discharge fee	$250 – $400	Charged by the outgoing lender
Title insurance	$250 – $500	Standard on refinances

Most of this can be rolled into the new mortgage, provided you stay under 80% LTV. The penalty is the one to watch. On a fixed-rate mortgage with a Big Six lender, the interest rate differential calculation can produce a number that surprises people badly. Get it in writing before you decide anything, and note that the penalty is not automatically a dealbreaker. If you’re saving $9,600 a year, a $7,000 penalty pays for itself in nine months.

When consolidating is the wrong move

I turn people away from this regularly. Don’t do it if:

• Nothing has changed behaviourally. If the cards refill within eighteen months you’ve doubled your problem and secured half of it against your house. We deal with this by closing or reducing the accounts at funding, not “keeping one for emergencies.”
• Your penalty exceeds the two-year saving and your renewal is close. Sometimes the right answer is a second mortgage or a HELOC bridge until renewal, then consolidate cleanly.
• You’re insolvent, not illiquid. If the debt exceeds what equity can absorb, a Licensed Insolvency Trustee is the right professional, not me. I will tell you that plainly and give you names.
• You plan to sell within a year. Closing costs won’t amortize.

Step by step

1. List every debt with its balance, rate and minimum payment. All of it, including the buy-now-pay-later balances people forget.
2. Establish value. A desktop or full appraisal sets the 80% ceiling.
3. Calculate accessible equity. Value × 0.80, minus current mortgage balance.
4. Price the penalty with your existing lender, in writing.
5. Qualify. Stress test at the greater of contract rate + 2% or 5.25%.
6. Fund, pay out, and close the accounts: the same week, not eventually.
7. Redirect the difference. Set up an automatic prepayment for the amount you were already paying. This is the step that turns relief into wealth.

Run your own numbers with the debt consolidation calculator →

A real example, anonymized

A London couple, both working, mid-forties. Home worth $685,000, mortgage $392,000. Between a line of credit, two cards and a truck loan they carried $118,000 at a blended 15.8%, with minimum payments of $2,610 a month. They weren’t in crisis. They were just tired.

Refinanced to $522,000 (76% LTV), paying out the mortgage, the consumer debt, a $4,100 penalty and $2,300 in closing costs. New mortgage payment rose by $690. Total monthly obligations dropped by roughly $1,920.

Here’s the part that mattered: they kept living on the old number. $1,900 a month goes at the mortgage as a prepayment. On that pace the consolidated balance is cleared in under nine years instead of twenty-five, and they saved more than $80,000 in interest they would otherwise have paid.

Written and reviewed by Derrick Johnston, Mortgage Agent Level 2, BRX Mortgage Inc. (FSRA #13463). Figures are illustrative. Not legal, tax or insolvency advice.