Definition
Mortgage debt consolidation involves refinancing a mortgage to include other debts (credit cards at 19-29%, auto loans, personal loans) in the mortgage balance, benefiting from a much lower interest rate.
Advantages: immediate reduction in monthly payments, simplification to a single payment, lower overall debt ratio (TDS). Disadvantages: short-term debts (auto, credit card) become long-term debts (25-year amortization) — total interest cost may therefore increase despite the lower rate. A 5-year auto loan at 8% costs less in total interest than an auto loan refinanced into a 20-year mortgage at 5%.
If consolidation exceeds 80% of the loan-to-value ratio, it is subject to CMHC/OSFI rules (insurance or stress test). A-lenders treat consolidation as standard refinancing. Mortgage break penalties apply if the existing loan is closed before maturity.