Consolidating debt into your mortgage

How it works

Debt consolidation combines several debts into one new loan with one regular repayment, according to Moneysmart. With a mortgage, you either top up your existing home loan or refinance to a larger one, and the extra amount pays out the other debts. See how to refinance a home loan for the switching steps.

The attraction is the rate. The risk is the term. The new debt is repaid at the home loan's pace, which is usually the remaining loan term, up to 30 years.

A worked example: $20,000 added to a mortgage

This is RateSonar's arithmetic, with the rate held constant. It assumes a $20,000 debt added to a home loan at the middle advertised standard variable rate of 6.74%, as at 2 Nov 2026. It is not an offer, and your lender may charge a different rate.

The low rate does not help if the term is long. Spread over 30 years, the monthly repayment is small, but the interest is far higher than if you cleared the same amount in 5 years at the same rate. Paying the 5-year amount each month on top of your normal repayment gets you the cheaper result. You need the discipline to keep doing it, and the loan has to allow extra repayments without a fee.

Moneysmart gives a similar example for a different case: a $20,000 debt at 10% over 5 years costs $25,496 in total, while 6% over 15 years costs $30,379. A lower rate with a longer term can cost more.

What else changes

• Your home is the security. Moneysmart says the home or car you put up as security may be at risk, and the lender can sell it to recover the debt. A missed credit card payment is one thing. A missed mortgage payment is a different level of risk.
• Loan size and LVR. A bigger loan on the same property raises your loan-to-value ratio. Check how close you get to the lender's limits. See what is LVR and, if the higher ratio means a smaller deposit share, lenders mortgage insurance. Ask whether your lender would charge more for the higher ratio.
• Fees. Moneysmart lists application, legal and valuation fees as costs to check, plus early repayment penalties on the debts you pay out. Ask for them in writing.
• Re-borrowing. Moneysmart notes you could get deeper into debt if you get more credit. Cancel or lower the limit on the cards you clear, if you can.
• A fixed loan. If your mortgage is fixed, ask about extra repayment limits and break fees before you top up. See fixed vs variable.

When it may make sense, and when it may not

Moneysmart says consolidation may help if you pay less overall, have a clear end date, can afford the repayments and stop using the old credit. It says the new term should not be longer than your current debts. If those do not apply, it can make things worse.

A cleaner approach if you do consolidate: ask for the extra amount as a separate loan split, with its own shorter term. Not every lender offers that, so ask.

Check the alternatives first

• Hardship. If the problem is that you cannot keep up, ask your lender about a hardship variation, which Moneysmart says may change your loan term or pause or reduce repayments. See struggling with mortgage repayments.
• Switch to a better rate. Compare lenders on the home loan rate board or in compare rates, but only if the saving is real after costs.
• Negotiate with the debt providers. Moneysmart says you can ask to change repayments or extend the loan.
• Free help. A financial counsellor can explain your options for free. The National Debt Helpline is 1800 007 007.
• Check who you deal with. Moneysmart says to check licensing on ASIC's Professional Registers and to be wary of anyone who rushes you or will not put costs in writing.

Questions to ask before you sign

1. What is the total interest on the added amount over the full term?
2. Can I make extra repayments, and does it cost anything?
3. What fees apply, and what will my LVR be afterwards?
4. Can the added amount be a separate loan split with a shorter term?
5. What happens to the cards after they are paid out?