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How to Consolidate Debt Into Your Mortgage

Everything You Need to Know About Debt Consolidation Mortgages

For homeowners with high-interest debts that are weighing them down financially, debt consolidation is an extremely appealing option that helps reduce your monthly debt payments and increase your cash flow.

Read below to learn what it means to consolidate your debt into your mortgage, the benefits of doing so, and how the process works.

What is a Debt Consolidation Mortgage?

If you have a lot of debt, consolidation could be your best bet at paying it off. Debt consolidation combines your debt into one stream, rather than leaving you with a pile of different debts to pay off. Technically, the process usually involves taking out a new loan to pay off your existing streams of debt, leaving you with only one loan to pay off.

If you own a home, you may choose to consolidate your debt into your mortgage. This option allows you to refinance your mortgage, which covers your higher-interest loans. Instead of juggling debt, you’ll be left with one loan to pay: your mortgage.

How Does It Work?

Consider your home’s equity. This term refers to the difference between your home’s value and the value that you owe towards your mortgage. As you pay off your mortgage, your equity increases.

Though your equity is not a concrete set of money that you physically own, you can still use it to pay off your other high-interest debt.

Specifically, this would change your mortgage agreement. You would take all of your high-interest debts and combine them, ideally lowering their interest rate.

As a result, your mortgage debt would increase by the amount of debt you’ve added, plus any other fees directly related to breaking your mortgage. You would need to determine whether the long-term value of this decision is worth it, and if your interest rate would actually decrease.

Example of Consolidating Debt Into Mortgage

Imagine that you have a car loan with an 8 percent interest rate, a credit card loan with a 15 percent interest rate, and a mortgage loan with a 3 percent interest rate. Now, imagine that every one of those loans had a 3 percent interest rate, and that you could pay them all off with just one payment a month. Paying them off would surely be easier.

How can you make this happen? Consider your mortgage itself. Let’s say your home was recently appraised at $450,000, and you still owe $250,000. You can determine your home equity by subtracting what you owe from your home’s value – in this case, that would be $200,000.

To consolidate debt, you would use your equity to pay off your existing loans, and increase what you owe towards your mortgage. In this example, the mortgage’s interest rate is much lower than the other loans, meaning that paying off the entire debt would be much easier with consolidation than without it.

Pros of Debt Consolidation Mortgages

If you think consolidating debt into a mortgage might be right for you, continue reading to learn about the potential benefits below.

Lower Interest Rate

This is one of the main reasons homeowners choose to consolidate debt into their mortgage.

Typically, home equity loans have far lower interest rates than other types of loans – especially unsecured loans like credit cards and personal loans.

Consolidating debt will likely bring down the interest rate of your other payments. As a result, you’ll ideally be able to pay off all of your debt sooner, as the interest won’t loom over your future as heavily.

More Affordable Payments

Because of the lower interest rates, payments will ideally be lower. Being able to afford payments is frequently cited as one of the greatest challenges by those with multiple loans.

Simplify Your Finances

It can be difficult to keep track of multiple loans – especially considering that each one has its own date, interest rate, and other specific regulations.

Consolidating debt makes it easy to think about finances. With only one loan to pay off, you’ll find it easy to keep track of your payments.

How to Consolidate Debt Into Your Mortgage: Learn Your Options

Home Equity Loans

Home equity loans give the borrower a lump sum of money. In return, the borrower must make fixed payments towards their loan over time.

Home Equity Line of Credit (HELOC)

Home equity lines of credit are slightly different from home equity loans. This option gives the borrower a line of credit that they can withdraw funds from as needed. These have a borrow limit and a variable interest rate, and do not require fixed payments.


Refinancing your mortgage is another option. This involves replacing your existing mortgage plan with a new one. You may do this if interest rates have dropped, or you simply want to change your terms. To do this, you would collaborate with your lender or mortgage broker to determine whether you can refinance.

Important Considerations

It’s important to note that, most often, you can only borrow up to 80% of the value of your home. HELOC AND refinancing options can go up to 80% loan to value. However, if you are able to get a private second mortgage, then it can go up to 85% or 90%.


It’s no secret that debt can weigh you down. When you have multiple loans to pay off, the problems can become far more complicated.

Fortunately, debt consolidation exists to help you in situations like these. If you’re a homeowner looking to consolidate debt, talk to a mortgage broker to learn more and find out if it is an option.

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