For homeowners managing multiple debts, home equity is often discussed as a way to consolidate balances into a single repayment structure. Because home equity options are secured by property, they may offer lower interest rates than unsecured debt.

However, using home equity to consolidate debt comes with different costs, risks, and long-term impacts depending on the option chosen. This guide compares the costs of three common home-equity consolidation methods in Canada: HELOCs, refinancing, and second mortgages.

Why Home Equity Is Used for Debt Consolidation

Home equity represents the portion of your home’s value that you own outright. As mortgage balances decrease or property values change, available equity may increase.

Some homeowners consider using equity to consolidate debt because:

• Interest rates may be lower than unsecured credit
• Multiple debts can be combined into one structure
• Payments may become easier to manage

Cost savings are possible, but they are not guaranteed. Understanding each option is essential before deciding.

Understanding the True Cost of Equity-Based Consolidation

The cost of using home equity goes beyond interest rates. It also includes:

• Setup and legal fees
• Appraisal costs
• Repayment length
• Risk tied to using your home as security

Comparing options requires looking at total cost over time, not just monthly payments.

HELOC (Home Equity Line of Credit) Costs

How a HELOC Works

A HELOC allows homeowners to borrow against available equity up to an approved limit. Funds can be used as needed, and interest is charged only on the amount borrowed.

Interest Rates

HELOC rates are usually variable. This means:

• Rates may be lower initially
• Monthly payments can change over time

Variable rates introduce uncertainty, especially during rate increases.

Fees and Costs

HELOC costs may include:

• Appraisal fees
• Setup or registration fees
• Ongoing account fees (in some cases)

Long-Term Cost Considerations

Because HELOCs are often interest-only at first, balances may remain unchanged for longer periods, increasing total interest paid over time.

Mortgage Refinance Costs

How Refinancing Works

Refinancing replaces your existing mortgage with a new one. Debt can be added to the mortgage balance and repaid over a new term.

Interest Rates

Refinance rates are often lower than unsecured debt rates. However, extending the mortgage term may increase total interest paid over time.

Fees and Costs

Refinancing may involve:

• Legal and administrative fees
• Appraisal costs
• Mortgage discharge or penalty fees

These costs should be included when evaluating affordability.

Long-Term Cost Impact

While refinancing may lower monthly payments, spreading debt over a longer term can significantly increase total repayment cost.

Second Mortgage Costs

How a Second Mortgage Works

A second mortgage is an additional loan secured against your home, separate from your primary mortgage.

Interest Rates

Second mortgage rates are usually higher than first mortgage rates but may still be lower than unsecured credit.

Fees and Costs

Second mortgages often include:

• Legal and registration fees
• Higher interest costs due to increased lender risk

Risk Considerations

Second mortgages increase financial obligations and can add complexity if financial circumstances change.

Hidden Costs Homeowners Often Overlook

Some costs are not always obvious upfront, such as:

• Rate changes over time
• Mortgage penalties
• Extended repayment timelines
• Increased total interest paid

Asking for a full cost breakdown helps avoid surprises.

Who Equity-Based Consolidation May Suit

Equity-based consolidation may be suitable for homeowners who:

• Have stable income
• Have sufficient equity
• Are comfortable using property as security

It may not be appropriate for those facing income uncertainty or long-term financial stress.

Key Questions to Ask Before Choosing an Option

Before proceeding, ask:

• What is the total cost over the full term?
• Are rates fixed or variable?
• What fees apply now and later?
• What happens if rates increase?

Clear answers support better decisions.

Final Thoughts

Using home equity to consolidate debt can reduce interest costs for some homeowners, but it also increases responsibility and risk. Comparing HELOCs, refinancing, and second mortgages carefully helps ensure choices are based on understanding, not urgency

Note: Rates and costs vary based on your credit profile, available equity, and location.