Definition
Debt consolidation refinancing consists of refinancing the existing mortgage at a higher amount and using the difference to repay high-rate debts.
**How it works**: 1. Current mortgage: $300,000 at 5.5%, payment $1,800/month 2. Debts to consolidate: credit card $20,000 (19.99%), auto $15,000 (7.99%), line $10,000 (prime + 3%) 3. New loan: $345,000 at 5.5% (after debt repayment) 4. Result: single mortgage payment, average debt rate drops from ~15% to 5.5%
**Advantages**: - Reduction in total monthly payment - Simplification (single payment) - Mortgage rate << consumer rate
**Disadvantages and risks**: - Potentially higher total cost over 25 years (short debts converted to long debts) - Refinancing penalty if breaking the term - Fees: bank appraisal, notarial fees, potentially CMHC insurance premium on the added amount - Relapse risk: if credit habits don't change, debts rebuild
**Criteria**: - LTV post-refinancing ≤ 80% (conventional) or ≤ 95% (insured, but not for consolidation — CMHC refuses debt consolidation via insurance) - OSFI: refinancing to consolidate >80% LTV is not insurable
**Alternative**: HELOC offers the same flexibility without refinancing the entire loan, at a variable rate.