A debt consolidation home loan refinances your mortgage to a higher balance and uses the extra funds to pay out credit cards, personal loans and car finance. It replaces rates of 12% to 22% with a home loan rate of around 6%, which cuts your monthly repayment substantially. The catch is the term: spreading a 3-year debt over 25 years can cost more in total interest despite the lower rate, unless you keep repaying at the old amount.
Lower rate does not mean lower cost. This is the calculation most consolidation marketing leaves out, and it is the one that decides whether consolidating is a good idea for you.
Consolidating $40,000 of consumer debt averaging 18% p.a. into a home loan at 6% p.a. Figures rounded, illustrative, and assume no further borrowing.
| Approach | Monthly cost | Time to clear | Total interest |
|---|---|---|---|
| Keep the debts, pay them down in 3 years | About $1,447 | 3 years | About $12,100 |
| Consolidate into a 25-year home loan, minimum repayments | About $258 | 25 years | About $37,300 |
| Consolidate, but keep paying $1,447 a month | About $1,447 | About 2 years 5 months | About $2,900 |
The middle row is what happens by default, and it costs roughly three times as much as leaving the debt alone. The bottom row is the entire point of consolidating: take the rate reduction, keep the repayment, and clear the debt years earlier for a fraction of the interest.
If you are struggling to meet minimum repayments, contact the National Debt Helpline on 1800 007 007 before taking on more secured debt. Their service is free and independent, and consolidating is not always the right answer.
Keep the consolidated debt in its own loan split on a shorter term — 5 to 7 years rather than 25 — so the amortisation forces the outcome instead of relying on discipline.
Most lenders require credit cards to be closed rather than paid to zero, and will make it a condition of settlement. Take it as sound policy rather than an imposition.
Direct debit the amount you were paying across all the debts before consolidating. The gap between that and the new minimum is what clears the balance early.
Closing every account can reduce your credit file depth. One card with a low limit for genuine emergencies is generally the sensible position.
It is, provided you keep repaying at the old level. Moving $40,000 of 18% debt to a 6% home loan and maintaining the same monthly payment clears it in under two and a half years for about $2,900 in interest. Dropping to the minimum over 25 years costs roughly $37,300 instead.
Enough to stay at or below 80% loan-to-value after adding the consolidated debt. Above 80%, Lenders Mortgage Insurance applies to the whole loan, and the premium frequently exceeds the interest saving that motivated the consolidation.
The refinance creates one hard enquiry, with a minor short-term effect. Beyond that it usually helps: closing multiple accounts and maintaining clean repayments on a single loan typically improves your score over 6 to 12 months.
HECS-HELP cannot be consolidated — it is a government debt repayable only through the ATO, though it still reduces your borrowing capacity. ATO tax debt can sometimes be included, subject to the lender and often requiring a formal ATO payment arrangement to be in place.
Usually yes. Most lenders make closure a condition of settlement rather than merely requiring the balance to be cleared, because an open limit is assessed as a liability. Keeping one card with a modest limit is normally acceptable.
Often, for smaller amounts. A personal loan at 9% over 5 years carries a higher rate but a fixed, short term that forces the debt to clear. It avoids securing consumer debt against your home. For larger balances the mortgage rate usually wins, provided you structure it on a shorter split.
We will model the total cost both ways — consolidated and left alone — using your real balances and rates. If leaving the debt where it is works out cheaper, we will tell you that.
NIK Finance Pty Ltd (ACN 685 393 917) is a Credit Representative (567387) of Finsure Finance & Insurance Pty Ltd (Australian Credit Licence 384704). This page is general information only and does not constitute financial advice. Consider your personal circumstances and speak with a licensed broker before applying for credit.