Quick answer: rolling credit cards, personal loans or a car loan into your home loan can cut your monthly repayments sharply, because home loan rates are much lower. The catch: spread over 30 years, that debt can cost far more interest overall. It works best when you keep repaying the consolidated amount quickly and close the old accounts.
With rates higher this year, more households are carrying credit card and personal loan balances alongside their mortgage. Consolidating can bring real breathing room. It just needs to be done with eyes open.
A worked example
Say you owe $30,000 on credit cards at 20% and $25,000 on a car loan at 9%, and both would be paid off over five years. Your home loan rate is 6.45%. Estimates only:
| Option | Monthly repayment | Total interest |
|---|---|---|
| Keep the debts separate (5 years) | ~$1,314 | ~$23,800 |
| Add $55,000 to the home loan, over 30 years | ~$346 | ~$69,500 |
| Add to the home loan, but repay it over 5 years | ~$1,075 | ~$9,500 |
The lowest repayment is the most expensive option over time. Keeping your repayments close to what you were already paying, now at the home loan rate, gives you most of the benefit: about $14,000 less interest than keeping the debts separate in this example.
What lenders look for
- Equity. To avoid lenders mortgage insurance, the new loan usually needs to stay within about 80% of your property’s value. How LMI works.
- Serviceability. You still need to afford the larger home loan at the lender’s rate plus a buffer. Paying off cards helps here, because lenders count a share of every card limit as a monthly commitment, even when the balance is zero.
- Closing the accounts. Most lenders require consolidated cards to be closed, or limits reduced, before or at settlement.
- A clean recent record. Missed payments, defaults or many recent credit applications narrow your options. Specialist lenders may still help, usually at a higher rate.
When it makes sense, and when it doesn’t
- Makes sense: high-interest debt, enough equity, and a plan to keep paying it off at a similar pace. An offset account or redraw makes it easy to pay extra. Offset vs redraw.
- Think twice: if the old cards are likely to be used again, if the switching costs or a new LMI premium outweigh the saving, or if you’re on a fixed rate with break costs.
- Already struggling? Talk to your lenders early about hardship options. Your options and rights.
Our refinance savings calculator shows the effect of a lower rate, and we can model the consolidation for your exact debts.
Common questions
Is it a good idea to consolidate debt into my home loan?
It can cut your monthly repayments a lot, because home loan rates are usually far lower than credit cards and personal loans. But spreading short-term debt over 25 or 30 years can mean paying much more interest overall unless you keep paying it off quickly.
How much equity do I need?
Enough to keep the new home loan within about 80% of the property’s value if you want to avoid lenders mortgage insurance. The lender will value your property and check you can afford the larger loan.
Will I have to close my credit cards?
Usually, yes. Lenders often require the consolidated cards to be closed, or the limits reduced, as a condition of approval. It also removes the temptation to run them up again.
Does consolidating hurt my credit score?
A refinance adds a credit enquiry, but paying off and closing high-interest debts can help your position over time. Missed payments are what really hurt, so act before you fall behind.
Can I consolidate if I’m already behind on repayments?
It’s harder, but sometimes possible with lenders that look at the full story. If you’re struggling, talk to your lenders about hardship options too. The free National Debt Helpline (1800 007 007) can also help.
General information only, not financial or credit advice. Example figures are estimates assuming the rates shown stay the same and monthly principal and interest repayments. Free, independent financial counselling is available from the National Debt Helpline on 1800 007 007.
