Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
Debt Consolidation Through Your Home Loan
Debt consolidation, rolling credit cards, personal loans, car loans and other high-interest debt into your home loan, is one of the most effective ways to reduce your total monthly debt repayments. The interest rate difference between home loan debt (6–7%) and unsecured debt (10–20%) is substantial, and consolidating reduces both your monthly outgoings and the total interest you pay over time.
Debt consolidation works exceptionally well when it's a one-time reset, clearing the deck and starting fresh with disciplined spending. It works very badly as a recurring strategy. I've seen clients consolidate debt into their mortgage, run the credit cards back up over 2–3 years, and end up in a worse position than before. The financial reset is only as valuable as the behavioural change that accompanies it. I have this conversation with every client before we proceed.
The Rate Comparison
- Credit card: 17–22% p.a.
- Personal loan: 10–18% p.a.
- Car loan: 8–12% p.a.
- Buy now pay later arrears: up to 25%+ p.a.
- Home loan (consolidated debt): 6.49–6.99% p.a.
Worked Example: Consolidating $85,000 of Debt
- Credit card 1: $22,000 at 19.99%, minimum repayment $550/month
- Credit card 2: $14,000 at 20.99%, minimum repayment $350/month
- Personal loan: $24,000 at 12.5%, 3yr remaining, repayment $805/month
- Car loan: $25,000 at 9.5%, 4yr remaining, repayment $645/month
- Total current monthly debt repayments: $2,350/month
- Consolidated into home loan at 6.49% IO: ~$460/month
- Monthly saving: ~$1,890/month
- Annual saving: ~$22,680
The Discipline Requirement
The monthly saving is real, but only if you don't recreate the debt. After consolidation:
- Cancel or significantly reduce credit card limits, don't keep the cards open at full limit
- Use the monthly saving to make extra repayments on the home loan (including the consolidated portion)
- Avoid taking on new personal debt while the consolidated debt is still being repaid
- Set a clear timeline for paying down the consolidated portion, treat it as a 5–7 year debt, not a 30-year one
Lender Policies on Debt Consolidation
Most lenders accept debt consolidation as a purpose for refinancing or equity release. Key considerations:
- Maximum LVR with consolidation is typically 80–90%, the consolidated debt increases your total loan
- Some lenders cap the amount they'll consolidate or restrict the types of debt
- Your serviceability must still work after consolidation (it almost always does, lower total repayments improve serviceability)
- Lenders may ask for evidence of the debts being consolidated (recent statements)
Tax Implications
Consolidating personal debt into your home loan is not deductible, the funds are used to repay personal (non-investment) debt, so the interest on the consolidated portion is not deductible. If you have investment debt being consolidated, keep it in a separate account to maintain deductibility. Don't mix investment and personal debt in the same account.
