Rolling personal loans, car loans, and credit card debts into your mortgage reduces your monthly repayments — sometimes dramatically. But it also resets your debt timeline to 25–30 years. Here's the honest calculation you need to make before doing it.
-50%
Typical monthly repayment drop
6%
Home loan rate (vs 20%+ credit card)
25+yr
New loan term (danger zone)
Works
With the right strategy
What Is Debt Consolidation Through Refinancing?
Debt consolidation through refinancing means refinancing your home loan to a higher amount and using the extra funds to pay off other debts — typically credit cards, personal loans, or car loans. The result is that all your debts become one loan at your home loan's interest rate.
Why this is appealing: home loan rates (currently ~6.0–7.0%) are dramatically lower than credit card rates (17–20%) and personal loan rates (9–15%). On paper, rolling high-rate debt into a low-rate mortgage looks like a no-brainer.
The Monthly Saving: Real and Significant
Let's run the numbers for a realistic scenario:
| Debt | Balance | Rate | Monthly Payment |
|---|---|---|---|
| Home Loan | $580,000 | 6.80% | $3,770 |
| Car Loan | $28,000 | 9.5% | $580 |
| Personal Loan | $15,000 | 12.5% | $420 |
| Credit Card | $8,000 | 19.9% | $240 |
| Total Before | $631,000 | — | $5,010/mo |
| Consolidated Home Loan | $631,000 | 6.40% | $3,940/mo |
Illustrative. The monthly saving here is ~$1,070 — real and meaningful. But see the warning below.
The catch: the long-term cost
The $51,000 in non-mortgage debt had an average remaining term of 3–4 years. By rolling it into a 25-year home loan, you pay interest on it for 25 years instead of 4. Even at a lower rate, the total interest paid on that $51,000 becomes much higher. The monthly saving is real — but the total cost calculation may not be in your favour unless you make extra repayments.
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Tell us your debts and we'll model the numbers — monthly saving vs total cost — so you can make an informed decision.
Or
When Debt Consolidation Via Refinancing Makes Sense
- Cash flow is genuinely tight: If the $1,000/month saving prevents missed payments, financial stress, or credit damage, the long-term cost may be worth it
- You commit to paying extra: If you redirect the $1,000/month saving into extra mortgage repayments, you pay off the consolidated debt faster and minimise the long-term cost
- The non-mortgage debts are high-interest: Credit card debt at 20% is expensive — even in a 25-year mortgage, the rate saving is dramatic
- You have sufficient equity: Lenders require your total loan amount to remain within 80% LVR (or higher with LMI) to approve the refinance to a higher amount
- You won't re-accumulate the debt: If you pay off the credit card and immediately start using it again, you've doubled the problem
When Debt Consolidation Via Refinancing Doesn't Make Sense
- The non-mortgage debts are close to being paid off — restructuring 12 months of remaining payments into 25 years is almost always the wrong call
- You don't have sufficient equity in your property to borrow more
- Your credit situation has changed since your original loan — getting approved for more may be difficult
- You haven't addressed the spending behaviour that created the debt — you'll accumulate it again
The Right Way to Do It: Make Extra Repayments
If you do consolidate, the most important discipline is to treat the consolidated debts as if they still have their original terms. If the car loan had 3 years remaining, make extra repayments to clear that portion of the mortgage within 3 years. This eliminates the long-term cost problem entirely.
An offset account is useful here — the $1,000/month saving goes into the offset, which reduces interest on the mortgage by the same amount as making extra repayments, while keeping the funds accessible if needed.
At Mortgagefy, we model both sides of the consolidation calculation honestly before recommending it. We compare your total interest cost with and without consolidation, model the extra repayment strategy, and confirm whether refinancing to a higher loan amount is feasible given your equity. Free assessment: call 0432 634 648. See also: Should You Refinance in 2026? | Offset Account vs Extra Repayments.
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