Refinancing or Debt Consolidation: When Does It Make Sense?

Refinancing

By Charandeep Deol, Mortgage Agent Level 2 · Updated October 2026 · 6 min read

Refinancing can be a useful tool, but it isn't right for everyone. Here's how to think it through.

What refinancing is

You replace your current mortgage with a new one, usually with a new rate, term, amortization and balance. People commonly refinance to:

• Access home equity (renovations, education, investing, major expenses)
• Consolidate higher-interest debts
• Change lenders or mortgage structure
• Buy out a partner

How much can you borrow?

Federally regulated lenders generally allow refinancing up to 80% of your home's appraised value. Example: home worth $900,000 × 80% = $720,000. If you owe $450,000, the most you could have in total is about $720,000, leaving up to roughly $270,000 of room before costs. Your income and credit still have to qualify, and other lenders have other rules.

Debt consolidation through your mortgage

Moving credit card or loan balances into your mortgage usually means a lower interest rate on that debt, and one payment. But:

• Debt spread over a long amortization can cost more total interest even at a lower rate.
• Your home secures the new mortgage. Not paying it has serious consequences.
• If card balances build up again afterwards, you can end up in a worse position.
• Not everyone will qualify.

Count the costs

• Prepayment penalty on your current mortgage (see how penalties work)
• Appraisal fees
• Legal fees
• Possible discharge or administration fees

Alternatives to consider

• Waiting until renewal, when penalties don't apply
• A home equity line of credit (HELOC)
• A blend-and-extend
• Paying down debt with a budget and the existing mortgage's prepayment privileges

A quick test

Add up the total cost of refinancing (penalty, fees) and compare it with the total interest you'd save over the time you expect to hold the new mortgage. If the savings don't clearly exceed the costs, refinancing may not be worth it. A conversation about your numbers can help you see the real picture.

This article is general information, not personalized mortgage, legal, tax or financial advice. Rules, rates and eligibility change and depend on your circumstances and lender criteria. Confirm details before you make decisions.