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Consolidating your debts into your home loan can make life easier with one repayment. But it’s not always the best move as spreading the debt over a longer term could cost you more in the long run
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Refinance with support from our trusted team of home loan experts. Updated 13 Feb 2026.
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A debt consolidation home loan lets you refinance your mortgage and combine multiple debts, such as credit cards, car loans or personal loans, into one loan with a single repayment to manage.
This means one interest rate, one set of fees and no need to juggle different due dates. Because home loan interest rates are usually lower than personal loan and credit card rates, consolidating can make your repayments simpler and potentially cheaper.
But spreading your debt over a longer term could cost you more in the long run. For example, if you have 20 years left on your mortgage, you’ll pay more interest on the consolidated debt over time.
Here’s how a debt consolidation home loan works:
To consolidate debt, you refinance your current home loan – either with your existing lender or a new one. As part of the refinance, you borrow enough to pay off your mortgage balance plus the total of the debts you want to roll in (e.g. credit cards, car loans, personal loans).
Once the new home loan is approved and funded, your lender uses the borrowed amount to pay out the debts you’re consolidating. This typically closes those accounts – though with things like credit cards, you may need to take the extra step of closing the account yourself if you want it completely gone. Either way, you’re left with just one loan to manage.
From this point forward, you only make one regular home loan repayment instead of juggling multiple due dates, fees and interest rates. Your new repayment is usually spread over your remaining or agreed mortgage term, which can make the monthly cost more manageable.
Because mortgage terms are typically much longer than personal loans or credit cards, you could end up paying more in total interest – even if your new interest rate is lower. The key is to keep making extra repayments where possible to reduce the total interest cost.
Meet Jade, who is managing two consumer debts outside of her mortgage. In this example, the hypothetical repayments and costs of her debts are:
| Credit card | Car loan | Home loan | Total debt | |
|---|---|---|---|---|
Balance | $10,000 | $20,000 | $500,000 | $530,000 |
Interest rate (p.a.) | 23.99% | 10.14% | 5.50% | Varies |
Time to repay | At 3% of balance, it’ll take 4 years and 8 months to repay | 4 years | 24 years | |
Monthly repayment | $300 | $509 | $3,130 | $3,939 |
Total interest cost | $6,638 | $4,413 | $401,568 | $412,619 |
After speaking with her financial advisor and mortgage broker, Jade decides it may be in her best interest to refinance and consolidate her credit card and car loan debt into her mortgage. She chooses to keep the home loan term at 24 years and aggressively pay down the added consolidated portion of debt, but she’s managed to snag a lower rate upon refinancing.
Now, here are the new details of Jade’s home loan after consolidating her debts:
| Debt consolidation home loan | |
|---|---|
Balance | $530,000 |
Interest rate (p.a.) | 5.19% |
Time to repay | 24 years |
Minimum monthly repayment | $3,222 |
Additional monthly repayment | $750 (for 3 years, 3 months) |
Total monthly repayment | $3,972 (for 3 years, 3 months - $3,222 thereafter) |
After consolidating her debts into her home loan, Jade’s new minimum monthly repayment is $717 lower than her combined debt repayments were before refinancing. But instead of pocketing the savings, she chooses to pay an extra $750 each month on top of the new minimum. That brings her monthly repayment to $3,972 – only $33 more than what she was paying before.
By making these extra repayments, Jade is aggressively paying down the $30,000 in consolidated debt. In the new scenario, it would take her around three years and three months (40 months) to pay it off – including interest. With the consolidated debt cleared, Jade could revert to the minimum repayment or maintain the higher repayment to clear the rest of her home loan faster.
Jade would save around $8,000 in interest on her credit card and car loan debt by consolidating them into her home loan, and a massive $165,068 in interest overall by securing a lower rate on her home loan, even if she reverts back to the lower minimum monthly repayment after 40 months.
Note: This hypothetical scenario assumes that Jade pays the same amount towards her credit card balance each month. The calculation does not factor in loan or credit card fees that may apply in either the current or debt consolidation scenario. It is based on the example details described only, and assumes Jade makes her debt consolidation home loan repayments on time every month until the loan is repaid. This may not reflect the outcome of debt consolidation in other scenarios. For simplicity, we’ve assumed the home loan interest rate remains the same for the life of the loan.
Debbie Hays, Money.com.au Senior Mortgage Broker
"Consolidating your debts into your mortgage can be a smart strategy if you’re committed to paying it down quickly. By using the savings from lower monthly repayments to make extra payments, you avoid stretching short-term debts over 10–25 years. I work with many clients who refinance to free up cash flow for big milestones like school fees, an investment property or simply improving their credit profile and breaking the debt cycle. I also outline what repayments on the consolidated portion would look like over 5–7 years so clients can clear it faster while taking advantage of the lower rate."
Debbie Hays, Money.com.au Senior Mortgage Broker
Check the debt consolidation home loan interest rate against what you are currently paying on each debt. A lower rate can save you money, but only if you avoid stretching the debt over a longer term.
Consolidating debts into a 10–25 year mortgage can increase the total interest you pay. Make a plan to repay the extra debt faster to avoid this.
There may be application, settlement and discharge fees when you refinance. Factor in these refinancing costs to ensure the savings outweigh the expenses.
When you consolidate debts into your mortgage, your home is the security for the entire balance. Missing repayments could put your property at risk.
If you continue to apply for credit cards or take on new debts, you may end up worse off as it can negatively impact your credit score or be viewed as a red flag by lenders. Be disciplined and avoid adding to the debt.
Look for features like offset accounts, redraw facilities or the ability to make extra repayments. These can help you pay down the consolidated debt faster and reduce interest costs.
Another factor (and strategy) when consolidating debt into your home loan is to structure the loan in a way that gives you more control. Instead of simply increasing your existing loan amount, you can split the loan so the additional debt sits in its own separate loan account.
This allows you to isolate the new debt from your original loan and focus on paying it down faster and more deliberately. You’d then set repayments on this smaller portion to ensure it’s paid off within a timeframe that suits your budget.
Some borrowers even consider splitting the loan with different rate types. For example, fixing the larger portion for repayment certainty, while keeping the smaller portion variable so you can make extra repayments. Or if your lender allows extra repayments on a fixed loan, you could flip the structure.
In any case, getting advice from a mortgage broker can help you find the right setup for your goals.
Here’s a general guide of what you’ll need to do:
When you add other debts to your home loan, your loan-to-value ratio (LVR) will increase. If it pushes your LVR above 80%, you may face higher interest rates or have to pay lender’s mortgage insurance (LMI), which can be expensive. Always check how the top-up will impact your LVR before proceeding.
If you’re not ready to consolidate debts into your home loan, here are some other options:
A personal loan for debt consolidation is a financial product offered by most lenders. This replaces various repayments with one fixed monthly payment, usually over a set term (1-7 years), which can make it easier to budget. But the average interest rate sits at 17.95% p.a. – much higher than the average home loan rate of 6.00% p.a.
A balance transfer credit card allows you to move existing credit card debt onto a new card with a low or 0% introductory interest rate. This can save on interest, but you’ll need to pay it off before the promotional period ends (typically within 6-24 months), or higher rates will apply.
If you’re struggling, contact your existing lenders or creditors and ask about hardship arrangements or customised payment plans. They may be willing to lower your interest, extend your term or pause payments until you’re in a better financial position. You can also contact the National Debt Helpline for free counselling and support.
Yes, you can refinance your home loan and roll other debts, such as credit cards or personal loans, into the one mortgage. This creates a single repayment and one interest rate.
It can be if you pay it down quickly. While repayments may drop, extending short-term debts over 10–25 years can cost more in total interest. Speak to a mortgage broker to see when is a good time to refinance based on your situation.
Not usually. Your credit report will show the refinance, but paying out existing debts can improve your credit score over time if you stay on top of repayments.
It depends on your equity, income, expenses, level of debt and credit history. Lenders need to see you can service the new loan amount, so having a strong repayment history helps.
Yes. Adding more debt to your mortgage increases your LVR. If it goes over 80%, you may face higher rates or need to pay lender’s mortgage insurance (LMI).
Yes. Alternatives include a personal loan, a balance transfer credit card, or negotiating payment plans with your creditors. These can be quicker but may have higher interest rates and/or fees.
They’re paid out as part of the refinance and closed. You’ll then focus on a single home loan repayment, so be careful not to re-use cleared credit cards or re-borrow.
Once your other debts are rolled into your mortgage, your home becomes the security for the entire loan. If you fall behind on repayments and can’t catch up, the lender can reclaim and sell your property.
But this doesn’t happen overnight. Lenders must follow strict processes and will usually offer hardship options or repayment plans first if you’re struggling. Seeking help early greatly reduces the risk of repossession.
Jared Mullane is a finance writer with more than a decade of experience at some of Australia’s biggest finance and consumer brands. His areas of expertise include energy, home loans, personal finance and insurance. Jared is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821).
Sean Callery is the Editor of Money.com.au. He has over 15 years of international experience. He is qualified with a Certificate IV in Finance and Mortgage Broking (FNS40821) and is compliant to provide general advice in Tier 1 General Insurance (RG 146) products.
