Home Equity to Consolidate Debts
Refinance Your Home or Get a Second Mortgage
What does using home equity to consolidate your debts mean? It means using the equity in your home (i.e. refinancing your home) to consolidate your debts into one payment in order to pay off your debts.
“Home Equity Loan”, “Home Equity Line”, “Refinancing your mortgage or re-mortgage,” and getting a “second mortgage” are all different names for the same thing and are sometimes used as a debt consolidation option. These terms refer to the bank lending you money against the portion of your home that you own. So if the bank thinks that your home is worth $300,000 and your mortgage is for $250,000, then you own $50,000 of your house. This is called your “equity.”
Your bank might let you increase your mortgage by taking out a second mortgage that uses up some of this equity to pay off your debts (check out our handy mortgage and debt consolidation calculator). You would then have two mortgages: your first mortgage and a second mortgage which could be the debt consolidation home loan. If this is something you’re interested in doing, speak with your bank or credit union to get information about the mortgage rules in Canada and see if this option could work for you. Sometimes if you have bad credit, it might be difficult to get a debt consolidation loan, so using home equity could be another possibility. Check with a credit counsellor to make sure that you choose the right option.