See how much you could save each month by combining your debts into a single home loan repayment at a lower interest rate.
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Debt consolidation is the process of combining multiple debts into a single loan with one regular repayment. Instead of juggling several different accounts, each with its own interest rate, minimum payment and due date, you merge everything into one place. For most Australian homeowners, the most effective way to consolidate is by rolling your debts into your existing home loan through a refinance or a loan top up.
The logic is straightforward. Credit cards typically charge between 18% and 22% per annum. Personal loans sit around 8% to 14%. Car finance ranges from 6% to 10%. Meanwhile, home loan rates in Australia currently hover between 5% and 7%. By shifting your higher rate debts onto a lower rate home loan, you reduce the total interest you are charged each month, which can free up hundreds or even thousands of dollars in cash flow.
When you consolidate debts into your home loan, your broker or lender increases your mortgage balance by the total amount of the debts being paid out. The settlement process pays off each of those accounts directly, and you are left with a single, larger home loan. Your new repayment is calculated on the combined balance at your home loan interest rate, spread over the remaining loan term.
For example, if you owe $450,000 on your mortgage and have $30,000 across a credit card, a car loan and a buy now pay later account, your new home loan balance would be $480,000. The monthly repayment on that combined amount at a home loan rate will almost always be less than what you were paying across all the separate accounts combined.
Your broker will assess your borrowing capacity to make sure the new total fits within your serviceability limits. They will also check your equity position, because most lenders want the combined loan to stay within a certain loan to value ratio, usually 80% to avoid lenders mortgage insurance.
The interest rate difference is where the real savings live. Consider a $20,000 credit card balance at 20% interest. The minimum repayment on that card might be $400 per month, and at that pace it would take over 9 years to clear the debt. You would pay roughly $24,000 in interest alone. If you rolled that same $20,000 into a home loan at 6%, the interest cost drops to around $1,200 per year instead of $4,000. That is a massive reduction in what you hand over to the bank each month.
The savings multiply when you add in personal loans and car finance. A household carrying $15,000 in car finance at 8%, $10,000 on a personal loan at 12% and $20,000 on credit cards at 20% could be paying over $1,500 per month across those debts. Consolidating all of that into a home loan might bring the combined extra repayment down to a few hundred dollars per month on top of the existing mortgage payment.
There is an important catch that every borrower needs to understand. When you add short term debts to a 30 year home loan, you are stretching those debts over a much longer period. A $20,000 credit card that might have been paid off in 3 to 5 years is now being repaid over decades. Even at a lower interest rate, the total interest paid over 25 or 30 years can exceed what you would have paid on the original debts.
The solution is to maintain your current level of total repayments even after consolidating. If you were paying $1,500 per month across all your debts before consolidation, keep paying that amount into your home loan rather than dropping to the new minimum. This way you get the benefit of the lower rate while still clearing the debt in a similar timeframe. Many lenders allow you to set up extra repayments or increase your regular payment amount without penalty.
Consolidation is a smart move when you have significant high interest debt, sufficient equity in your home and the discipline to avoid accumulating new debt afterwards. It works particularly well for homeowners who are already planning to refinance their mortgage, because the consolidation can be handled as part of the same transaction with no additional effort.
It also makes sense when your monthly cash flow is under pressure. Reducing your total repayment obligation gives you breathing room to cover everyday expenses, build an emergency fund or redirect money into savings. For families dealing with the rising cost of living, that extra cash flow can make a genuine difference.
Consolidation is not the right answer if you do not have enough equity in your home. Adding debts to a mortgage that already sits above 90% loan to value ratio will likely attract lenders mortgage insurance, which adds thousands to the cost and can wipe out any interest savings.
It is also risky if the underlying spending habits have not changed. If credit card debt was caused by persistent overspending rather than a one off event, consolidation without behavioural change simply clears the deck for more spending. Many borrowers who consolidate without addressing their habits end up back in the same position within a few years, but now with a larger home loan as well.
Most lenders will allow you to consolidate a range of consumer debts into your home loan. The most common ones include:
Before consolidating, it is worth working out your break even point. This is the point at which the interest savings from consolidation exceed the costs of refinancing. Common costs include a discharge fee from your current lender (typically $150 to $400), government mortgage registration fees, valuation fees and potentially lenders mortgage insurance if your equity is tight.
Add up all the one off costs of refinancing. Then calculate how much you save each month by comparing your current total repayments to the new consolidated repayment. Divide the total costs by the monthly saving and you get the number of months until you break even. For most borrowers with meaningful debt balances, the break even point falls within 3 to 6 months.
Our calculator above gives you a quick estimate of your monthly savings. For a detailed break even analysis that includes all the fees specific to your situation, speak with one of our brokers at no cost.
Lenders assess debt consolidation applications much like any other home loan refinance. The key factors include your income and employment stability, your credit history and score, the equity available in your property and your overall debt to income ratio. They will also examine your living expenses and existing commitments to determine whether you can comfortably service the new, larger loan.
One area that receives extra scrutiny is the reason for the debt. A lender may look more favourably on a borrower who accumulated credit card debt due to a medical emergency or period of reduced income compared to someone with a pattern of ongoing overspending. Being upfront with your broker about the circumstances helps them position your application with the most suitable lender.
Your credit file will also show any late payments, defaults or court judgments. While these do not automatically disqualify you, they may limit which lenders are available. Specialist or non bank lenders are often more flexible in these situations, and a good broker will know where to place your application for the best outcome.
Consolidation gives you a clean slate, but it only works long term if you change the habits that led to the debt in the first place. Here are practical steps to stay on track:
Debt consolidation is a powerful tool when used correctly. It can save you thousands in interest, simplify your finances and give you the breathing room to build genuine wealth. The key is to treat it as a turning point rather than a quick fix. Use the calculator above to see what you could save, and if the numbers look promising, get in touch with our team for a personalised assessment at no cost.
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