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The average price of a house in Canada, especially those in Vancouver and Toronto, has skyrocketed over the past few years. If you were lucky enough to have purchased your house before the housing market boom, you probably have quite a lot of equity to work with. The great thing about home equity is that it can be used to pay off high-interest debt, like credit card debt or other consumer debt.

Will Selling Your Home Help You Become Debt-Free?

It really depends on your financial situation and the state of the housing market. Here are some important things to consider before you sell your home to become debt free:

How Much You Would Make From The Sale Of Your Home

Every mortgage is different and not all homes are valuable enough to generate a profit or help you get back what you paid in the first place. Your home’s performance on the real estate market depends on its appraisal value, the size of your initial down payment, and whether or not you’ve made improvements to increase its value since you purchase it.

The ideal strategy would be to use the sale proceeds to cover the debt remaining on your mortgage, including interest, fees, and future closing or selling costs. If the home is less valuable than your balance, selling it may not make sense.

On the other hand, if you bought your home when prices were low, you might be able to pay off the whole mortgage right away. Then, once you have enough home equity, you could sell the property for a tidy profit when the market booms again.   

How Much Debt You Have

The next step is to find out how much debt you have on top of your mortgage payments, like credit card bills, property taxes, and other recurring costs. Then, weigh that amount against your yearly net income (after taxes) and the appraisal value of your home. This should give you a good idea of whether your home is worth selling to pay off that debt.

Remember, you want to use the sale of your home to settle your remaining mortgage balance, which means you also have to account for closing and selling costs, such as: 

  • Interest
  • Land transfer & property taxes
  • Appraisal & inspection fees  
  • Home & fire insurance
  • Moving expenses  

How High The Rent Is In Your Area

If you’re having a tough time paying your mortgage and other debts at the same time, it can be even more affordable to downsize to an apartment or condo. Just make sure to compare the rent prices in several neighbourhoods before you agree to sign a lease.  

Unfortunately, your new place may have utilities, homeowners’ association fees, and maintenance fees that end up costing the same as your current mortgage payments. If you’re thinking about selling your home to become debt free, don’t forget to look at the whole picture first.

Alternative Debt Relief Options

If your debt is out of control, it may be time to speak with a financial advisor or credit counsellor and work out a strategy. 

Debt Management Plan (DMP)

A DMP is an informal process where a credit counselling agency negotiates with your lenders and helps you find an affordable way to consolidate your debts using monthly payments. The process is normally reserved for unsecured loans, credit cards, and lines of credit.

If eligible, a DMP gives you up to 5 years to pay back what you owe, minus the interest. 

Can You Keep Your Home During A DMP?

After a DMP, there may be a negative effect on your credit score for two years. However, you’re allowed to keep all your assets (even though it may be a better idea to sell them).  

Consumer Proposal

A consumer proposal is a legal process where you hire a Licensed Insolvency Trustee (LIT) to negotiate a debt payment plan with your creditors. Unlike a DMP, it can be applied to almost any type of debt, including tax debt. The only exceptions are:

  • Secured debts
  • Debts that arise due to fraud
  • Court-ordered fines and monetary penalties
  • Spousal or child support payments
  • Some student loans (if you finished full or part-time studies 5 – 7 years ago)

In this case, your LIT will evaluate your assets, income and expenses to determine your ability to make payments. Typically, you’ll have to pay a percentage of what you owe, with no interest, and you’ll have a maximum of 5 years to complete your payments.   

Can You Keep Your Home During A Consumer Proposal?

Although there will be a negative impact on your credit score for up to 3 years after your payments are done, you’ll also be able to keep your assets during a consumer proposal.  


Personal bankruptcy is a federally-regulated process that you can declare when you’re totally incapable of paying back your debts. You’ll once again work with a LIT to arrange a legal way of repaying your creditors. Most types of unsecured debt are eligible, except for the same ones listed in the consumer proposal section above. 

Your bankruptcy term and final payment amount are both assigned based on your surplus income, as well as the number of times you’ve declared bankruptcy:

  • 9 or 21 months for the first time
  • 24 or 36 months for the second time

Can You Keep Your Home In A Bankruptcy?

Many of your assets can be taken to repay your debts. Your LIT will explain which assets are exempt or protected under federal and provincial law. If you don’t have enough equity to repay your debts, but agree to keep paying the lender, you may hold onto your home

To do this, you must pay your remaining equity toward your LIT, minus any provincial exemptions (some of which allow you to retain part of equity following a bankruptcy). 

How To Use Your Home To Pay Off Debt?

If you want to pay off excess unsecured debts and you have a certain level of equity in your home, then you pretty much have two available options:

  • Sell Your Home – The first is probably the most obvious. Simply sell your home and pay off your debts by cashing in the equity.
  • Use Your Home Equity – If you are not prepared to sell your home, you can always use the equity from your home to fund a debt consolidation loan. What this will do is consolidate your old debts into one debt which should have a better interest rate and be easier to manage.

Should You Sell Your Home?

None of these decisions should be made hastily. Every option comes with its own pros and cons.  To get closer to finalizing which option is best for you, a cost-benefit comparison is a good idea.  But before that, let’s take a detailed look at these two options.

Can You Afford To Keep Your Home?

The very first step is to take a close look at your budget to make sure you can afford to keep making your mortgage payments. Establish the root cause of your financial issues. It is possible that you’ve been having trouble with your mortgage payments due to certain unforeseen financial issues, such as temporarily being out of work. If you have found another job and your income is back to normal, then selling your home is not exactly necessary.

It is also possible that you have taken on other expenses or your income has decreased due to a change in employment. If after reviewing your budget you realize that your home is not really a true reflection of your income anymore, then this is another story. If this is the case, you may need to consider either selling your home or downsizing.

Will Selling Your Home Be Enough?

You may be in a position where you can afford to keep your home but you may want to sell it anyway in order to pay off all your others debts and start over with a clean slate. This option is really only worth it if you have enough equity in your home to actually pay off all your other debts.

Let’s say you have $500,000 worth of debt but will only make $400,000 in profit, you’ll have to decide whether selling your home and having to relocate is truly worth it. Will you be able to sell your home, relocate and be able to save enough in order to pay off the additional $100,000 debt in a realistic time period?

Things You Should Do Before Selling Your Home To Pay Off Debt

Letting go of your house is always a tough decision, no matter how necessary it might be. So, don’t forget to take these steps before selling your home to pay off debt:    

Increase Your Income

Start by finding a new job, asking for a promotion at work, or taking on a second form of employment. Then figure out how much you would pay to rent, versus the cost of your mortgage. If your income still isn’t enough to cover your mortgage payments, talk to the lender about your options, along with the costs and considerations of selling your home.   

Decrease Your Spending

If you can’t alter your mortgage payments, try reducing your daily expenses. Shopping at cheaper stores, using alternative modes of transit or selling your car can make a huge difference in the long run, particularly if it means keeping a home you love. Once you have a proper budget, you can always think about refinancing your home later on.    

Factor In Your New Costs

Next, add up your new expenses, weigh them against your potential rental costs, then adjust your budget accordingly. If you’re thinking about switching to a more affordable neighbourhood, be sure to factor in costs like moving, insurance, and transportation. If those costs add up to more than your mortgage payments, the decision may be easy.  

Selling Your Home FAQs

How much will it cost to sell my house?

This can depend on several factors, but the major costs of selling your home include:
  • Real estate commissions (and the sales taxes that apply to them) 
  • Appraisal, inspection and legal fees
  • Possible penalties for breaking or transferring your mortgage contract
  • Taxes, interest, and other expenses 

If I declare bankruptcy to clear my debt, how long will it affect my credit?

After being discharged from bankruptcy, it will be noted on your credit report for 6-7-years which may negatively affect your credit.

Should I file a consumer proposal or sell my house to pay off my debt?

If you file a consumer proposal, it can help provide debt relief for all of your unsecured debt, including tax debt. Moreover, with this option, you’ll get to keep your home. However, a consumer proposal can negatively impact your credit. On the other hand, if you sell your home, you can repay your debt without any negative effects on your credit. However, you’ll need to ensure that the net profit of the sale is enough to cover all your debts. This option also means you’ll lose your house.

Choosing the Right Option

If your debts are serious and you’re considering selling your house to pay them off your best bet is to seek the help of a professional. The first meeting you have with a licensed insolvency trustee is always free. They will be able to advise you on your options and tell you which one is best suited for your unique financial needs.

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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