By Jason Given - June 2026 - 6 min read
Debt consolidation through your home loan is straightforward in concept. You refinance your mortgage to a higher amount that covers your existing home loan plus all the other debts you want to clear - credit cards, personal loans, car loans, buy-now-pay-later balances. Those debts are paid out directly by the new lender, and you are left with a single monthly repayment at your home loan rate.
The appeal is obvious. Instead of juggling five different repayments at rates between 8% and 22%, you have one repayment at around 6%. Your monthly cash flow improves immediately, and the stress of managing multiple debts disappears.
Here is a real-world example. Say you have the following debts alongside your mortgage:
Total other debt: $55,000. Total extra repayments: $1,340/month. Average weighted interest rate: about 15%.
If you consolidate this $55,000 into your home loan at 6%, the interest cost drops from roughly $8,250 per year to $3,300 per year - a saving of nearly $5,000 per year in interest.
Here is where consolidation can go wrong. Those credit cards and personal loans would have been paid off in 3-5 years at their current repayments. If you roll them into a 30-year mortgage and just make minimum repayments, that $55,000 at 6% over 30 years costs $63,700 in interest. That is more than the debts themselves.
The lower rate only wins if you maintain the discipline to pay the consolidated amount down quickly.
The smart way to consolidate is to set up a separate loan split for the consolidated debt. Keep your main mortgage as it is, and put the $55,000 on a separate variable split with higher repayments - ideally matching or exceeding what you were paying on the individual debts.
In the example above, you were paying $1,340/month on your other debts. If you maintain that same $1,340/month on the separate $55,000 split at 6%, you will clear it in about 3.5 years and pay only $5,800 in total interest. That is a genuine saving compared to paying $55,000 across three separate loans at higher rates.
The separate split also keeps things clean for your records and makes it easy to track your progress.
Consolidation only works if you change the behaviour that created the debt in the first place. If you consolidate $18,000 in credit card debt and then run the credit cards back up again, you are worse off than before - you have the mortgage debt and the new credit card debt.
Most lenders will require you to close the credit cards and personal loan facilities as part of the consolidation. This is actually a good thing - it removes the temptation and forces a clean start.
It makes sense when: you have significant high-interest debt, sufficient equity to absorb the consolidation, stable income to support the repayments, and a genuine commitment to not re-accumulating debt.
It does not make sense when: the debt is small enough to pay off within 12 months at current rates, you do not have enough equity (pushing your LVR above 80% triggers LMI), or the underlying spending habits have not changed.
Lendology's approach: We structure every consolidation with a separate split and an aggressive repayment plan. We also close the old facilities so you start fresh. Book a free chat and we will show you exactly how much you can save and how long it will take to clear the consolidated debt.
The consolidation itself does not negatively affect your credit score. In fact, closing credit cards and personal loans after consolidating can improve your score over time because you are reducing the number of open credit accounts. The new home loan application will generate a credit inquiry, which has a small temporary impact, but this is minor. The bigger factor is your repayment history going forward - making consistent repayments on the consolidated loan will build a strong credit profile.
It is harder but not impossible. Some lenders have specific products for borrowers with impaired credit histories. The interest rates will be higher than standard loans, but they may still be lower than the credit card and personal loan rates you are currently paying. The key requirement is having enough equity in your property to secure the consolidated loan. Lendology works with specialist lenders who consider applications that mainstream banks might decline.
The savings depend on how much debt you have and what interest rates you are currently paying. As a general example, consolidating $50,000 in credit card debt from 20% to 6% saves around $7,000 per year in interest alone. But if you spread that $50,000 over a 30-year mortgage instead of paying it off in 3-5 years, you will pay more in total interest despite the lower rate. The smart approach is to consolidate at the lower rate but maintain aggressive repayments on a separate loan split.