Rolling credit cards, personal loans, and car finance into your mortgage can cut your repayments by half in some cases.
The usual concern is that you're stretching short-term debt over 30 years and paying more interest overall. That's true if you don't adjust your repayment amount. The approach that works is to refinance to consolidate the debt, then keep paying what you were paying across all your debts combined. You clear everything faster, save on interest, and get back to a single direct debit instead of managing four or five.
Consolidate into mortgage: how the numbers change
You borrow against the equity in your property to pay out all your other debts, then make one repayment at your mortgage rate instead of multiple repayments at higher rates. Credit cards sit around 20% per year, car loans around 8% to 12%, and personal loans similar. Your home loan might be sitting closer to 6%. The difference in interest adds up quickly.
Consider a fixed plant operator with $40,000 spread across a car loan, a credit card, and an old personal loan. Combined minimum repayments are around $1,400 a month. After refinancing that debt into the mortgage, the repayment on the additional $40,000 might be $250 a month at current variable rates. If they keep paying the original $1,400 toward the mortgage, the $40,000 gets cleared in under three years and they save several thousand in interest compared to leaving the debts separate.
When consolidating makes sense and when it doesn't
This approach works if you have enough equity in your property and can commit to maintaining or increasing your total monthly repayment. Most lenders will lend up to 80% of your property's value without charging Lenders Mortgage Insurance, so if your current loan sits below that threshold, you likely have room to access equity.
It doesn't work if you're already at or near your borrowing limit, or if your spending habits haven't changed. Clearing a credit card through refinancing only helps if the card stays cleared. We regularly see operators refinance to wipe debt, then rebuild the same balances within 18 months because the original spending pattern didn't shift. If that's a risk, a debt consolidation loan with a fixed term and no redraw might be the safer option.
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Improve cashflow: what happens to your offset and redraw
When you refinance your home loan to consolidate debt, your loan amount increases. If you had $50,000 in your offset account before refinancing, that same $50,000 still offsets interest after the refinance. The difference is that your new loan balance is higher, so the proportional impact of the offset is smaller. The offset still saves you the same dollar amount in interest each month, but it takes longer to clear the increased loan balance unless you keep adding to it.
Some lenders don't offer offset accounts on all loan products. If you refinance to a loan without offset but with redraw, any lump sum payments you make sit in the loan and reduce interest, but accessing that money later can take a few days and might require paperwork. If you're in a roster cycle where quick access to cash matters, confirm the redraw terms before you sign.
Fixed rate period ending: timing the refinance
If your fixed rate is about to expire and you're also carrying high-interest debt, refinancing at the same time lets you address both. Coming off a fixed rate is the natural point to review your loan anyway, so bundling debt consolidation into that process avoids paying break costs and gives you a clean start on a new loan structure.
Lenders assess your refinance application based on your current income, expenses, and the total loan amount you're asking for. FIFO income is treated differently depending on the lender. Some will count your full roster earnings, others will average them or apply a discount. If you're refinancing to consolidate $30,000 in debt on top of your existing mortgage, your application needs to show you can service the new loan amount comfortably. That's where a broker who understands FIFO income structures can make the difference between an approval and a decline.
The refinance process when debt consolidation is involved
You'll need a current property valuation, either a desktop valuation organised by the lender or a full inspection if your property type or location requires it. The lender will also ask for statements covering all the debts you want to pay out, along with proof that those debts have been closed once the refinance settles. The process typically takes three to five weeks from application to settlement, depending on how quickly you provide documents and whether the valuation comes back at or above the figure you need.
Once the new loan settles, the lender pays out your old mortgage and transfers the funds to close your other debts. You're left with one loan, one repayment, and one interest rate. From there, the focus is on keeping that repayment high enough to clear the consolidated debt quickly and avoid falling back into the cycle.
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Frequently Asked Questions
Can I refinance to consolidate debt if I'm still in a fixed rate period?
Yes, but you'll likely pay break costs to exit the fixed rate early. The costs depend on how much time is left on your fixed term and how much rates have moved since you locked in. If the break costs are lower than the interest you'd save by consolidating high-interest debt sooner, it can still make sense.
How much equity do I need to refinance and consolidate debt?
Most lenders will let you borrow up to 80% of your property's current value without paying Lenders Mortgage Insurance. If your existing mortgage plus the debt you want to consolidate stays under that 80% threshold, you'll usually have enough equity. Anything above 80% typically attracts LMI, which adds to your costs.
Will refinancing to consolidate debt affect my credit score?
The refinance application itself triggers a credit enquiry, which has a small short-term impact. Closing multiple accounts after consolidation can actually improve your score over time, as long as you don't reopen new credit accounts immediately. The bigger factor is making consistent repayments on the new loan.
What happens if my property valuation comes in lower than expected?
If the valuation is lower than you need, you might not have enough equity to consolidate all your debt without paying LMI. You can either pay the LMI, consolidate a smaller portion of the debt, or look at alternative options like a separate debt consolidation loan for the shortfall.
How long does it take to refinance when consolidating debt?
The process usually takes three to five weeks from application to settlement. It can be faster if you provide all documents upfront and the lender can do a desktop valuation, or slower if a full property inspection is required or if there are delays with debt payout confirmations.
