Why Consolidating Debt into Your Home Loan Makes Good Sense – and What You Need to Know

Are you feeling the pressure of juggling multiple debts?

Having credit cards, personal loans, and car finance debts on top of your mortgage can make you feel like you’re constantly treading water. Consolidating these debts into your home loan could be a way to ease the pressure by having just one simple repayment? It can also potentially save you thousands of dollars in interest.

But like any financial decision, it’s important to understand the pros, cons, and how to go about it wisely.

1. What is debt consolidation?

Debt consolidation means taking these multiple debts – usually those with higher interest rates – and combining them into a single loan with a lower rate. In this case, it means refinancing or increasing your home loan, which usually has the lowest interest rate, to pay off things like credit cards, personal loans, or even tax debt. Instead of keeping track of multiple repayments, you’ll have one regular mortgage repayment which can help with budgeting and cashflow.

2. What are the benefits of consolidating your debt?

Consolidating your debts into your home loan can offer several practical benefits, and give you more peace of mind, especially if you’re juggling multiple repayments or high-interest debts.

Lower interest rates – credit cards and personal loans often come with steep interest rates, sometimes upwards of 15–20%. Home loans, on the other hand, have much lower rates (in most cases). By moving your high-interest debts into your mortgage, your repayments each month will be less.

Simplified finances – keeping track of several due dates, interest rates, and minimum repayments can be overwhelming and keep you up at night. Consolidation rolls everything into one easy-to-manage repayment, so you’re less likely to miss a payment. One payment means less stress, and more control of your money.

Improved monthly cashflow – because your consolidated debt is spread over the life of your home loan (which could be 20 – 30 years), your monthly repayment amount will likely be much lower than the combined repayments of your previous debts. This frees up cash for day-to-day expenses or savings.

Reduced stress – Financial stress can take a toll. Why not have less outgoings each month if your home equity allows? Having one clear, manageable repayment can bring more clarity, confidence, and peace of mind.

3. What to watch out for

Consolidating debt can be a smart move, but only if done with care. Here are some key things to consider:

• Longer loan term: Spreading debt over a 20 or 30-year home loan could mean paying more interest over time, even at a lower rate.
• Discipline is key: Clearing your credit cards with your home loan, only to rack them up again, defeats the purpose. Improving money habits around credit cards is key.
• Fees and costs: There may be refinancing fees, exit fees on current loans, or government charges to consider. A good broker will walk you through these.
• Equity requirements: You’ll generally need enough equity in your home to cover the extra borrowed amount. That’s where I come in – to help you crunch the numbers.
• Managing repayments: It’s important to keep up with the repayments if you consolidate because otherwise you risk your home and that’s a no-no.

4. How to consolidate

This is what generally happens when I work with clients to consolidate their debts:

1. Book a chat with a mortgage broker (like me!). This is your first step. I’ll take the time to understand your current financial situation, including your existing home loan, your outstanding debts (like credit cards or personal loans), and your short/long-term goals.

2. Review your equity position. Together, we’ll work out how much equity you’ve built in your property. Equity is the difference between what your home is worth and how much you owe on it. If there’s enough equity, we can look at options to increase your loan to cover your other debts.

3. Compare and customise loan options. With access to over 50 lenders, I’ll do the legwork to find competitive loan options with features that suit your lifestyle and goals. We’ll run the numbers to see how much you could save.

4. Finalise the refinance. Once you’re happy, I’ll manage the paperwork, deal with the banks, and guide the application through to approval.

5. Enjoy the benefits. With fewer repayments, lower interest rates, and improved cashflow, you’ll be on a more manageable financial path.

Need help making sense of your debts?

Let me into your circle of trust and let’s talk about whether consolidating into your home loan is the right move. There’s no obligation, just honest, practical advice to help you feel more in control of your monthly outgoings.

Call me today on 0430 511 500 or email me at glen@keystonemortgagebrokers.com.au to book a free discovery session.