Debt Consolidation Mortgage vs. Consumer Proposal (2026): Which Is Right?

When high-interest debt becomes unmanageable, two very different solutions get recommended: roll the debt into your mortgage (a debt consolidation mortgage), or file a consumer proposal to settle it for less than you owe. They're not interchangeable — one protects your credit and equity, the other reduces what you repay but leaves a mark. Here's how to choose.

The short answer

If you own a home with equity and can carry the payments, a debt consolidation mortgage is usually the better choice — it keeps your credit intact, protects your home, and slashes interest. A consumer proposal makes more sense when you have little or no equity, when the debt is simply too large to repay in full, or when you can't qualify for financing. Equity is the deciding factor.

What each one does

Debt consolidation mortgage

You refinance your home (or add a second mortgage) and use the proceeds to pay off credit cards, lines of credit, and other high-interest debt. Everything collapses into one mortgage payment at a far lower rate. You repay 100% of the debt, but at maybe 5–7% instead of 20–30%. Your credit is unaffected — in fact it usually improves as balances clear. How refinancing works.

Consumer proposal

A licensed insolvency trustee negotiates with your creditors to repay a portion of what you owe (often a significant discount) over up to five years, interest-free. You repay less, but it's recorded as an insolvency event and affects your credit for years afterward.

Side-by-side

• Total repaid: Consolidation = 100% of principal at a low rate. Proposal = a reduced settlement.
• Interest: Consolidation = low mortgage rate. Proposal = 0%, but on a reduced balance.
• Credit impact: Consolidation = neutral-to-positive. Proposal = negative, lingering for years.
• Your home: Consolidation uses your equity but you keep the home. Proposal doesn't touch the home but doesn't help you tap its equity either.
• Eligibility: Consolidation needs equity and the income to qualify. A proposal is for when you can't repay in full.

How to decide

Ask three questions: Do you own a home with usable equity? Can you afford the consolidated mortgage payment? Can you actually qualify for the refinance? Three yeses point strongly to a consolidation mortgage — you'll pay less interest, keep your credit, and protect your home. If equity is thin or the debt load is simply beyond what your income can service, a proposal may be the realistic reset. A broker and, where needed, a licensed insolvency trustee can run both numbers for you.

What if my credit is already damaged?

Even with bruised credit, a consolidation mortgage may still be possible through an alternative or private lender on an equity basis — sometimes avoiding a proposal entirely. And if you've already completed a proposal, you can still get a mortgage: see getting a mortgage after a consumer proposal and how to rebuild credit for a mortgage.

Frequently asked questions

Is a debt consolidation mortgage better than a consumer proposal?

If you own a home with equity and can afford the payment, usually yes — it keeps your credit intact and protects your home while cutting interest dramatically. A proposal is better when you lack equity or can't repay the debt in full.

Will a consolidation mortgage hurt my credit?

No — it typically helps, because paying off revolving balances lowers your utilization. A consumer proposal, by contrast, is an insolvency event that affects credit for years.

Can I get a consolidation mortgage with bad credit?

Often yes, through an alternative or private lender that lends against your home equity rather than your score. See bad-credit options.

How much equity do I need to consolidate?

Generally enough to stay within about 80% of your home's value once the debt is rolled in (private lenders often go to ~85%). Subtract your mortgage and the debts from ~80% of your home's value to gauge room.

Weighing your options? Explore a debt consolidation mortgage or talk to us confidentially — we'll show you the real cost of each path before you commit.