How a debt consolidation refinance works
- 1
Add up every debt
Balances, repayments and rates, including the ones you'd rather not look at.
- 2
Check your equity
The new loan has to fit within what lenders will lend against your home.
- 3
Refinance for the total
The new lender pays out your old mortgage and each debt at settlement.
- 4
Close the accounts
Paid-out cards should be cancelled, or the same problem returns.
Many lenders pay the other creditors directly at settlement. That's reassuring for the lender and for you, because the money goes where it's meant to.
Is consolidating debt into your mortgage a good idea?
It can be a lifeline, but it's not free money. Here's the honest picture:
| Upside | Downside |
|---|---|
| One repayment, easier to manage | Short-term debts stretched over a long term can cost more interest overall |
| Usually a lower rate than cards or personal loans | Your home now secures debts that weren't secured before |
| Lower monthly outgoings, more breathing room | Only works if the old cards stay closed |
| Can clear arrears and stop collection calls | Specialist loans for bad credit cost more than standard ones |
Debt consolidation with bad credit
If juggling debts has led to late payments or defaults, mainstream lenders may decline. Specialist lenders look at the bigger picture: if consolidation genuinely lowers your outgoings and you have the equity, they'll often say yes, at a higher cost, with the goal of refinancing to a cheaper loan later.
Prefer not to touch the mortgage? A debt consolidation loan combines debts without refinancing, though usually at a higher rate than a home loan.
Including an ATO debt
Tax debts grow with general interest charges and can lead to the ATO taking firmer action. Rolling a tax debt into a refinance can stop it growing. See home loans with an ATO debt.
A worked example
A family has a home loan, two credit cards, a car loan and a buy now pay later balance. Combined, their monthly repayments on the non-mortgage debts are more than the mortgage itself, and they've missed two card payments.
Refinancing pays out all four debts at settlement. Their total monthly outgoings drop sharply because the debts are now spread over the home loan's term. They keep paying an extra amount each month, close the cards and plan to refinance again in 18 months to a lower-cost lender once the missed payments are well behind them.
Debts you can and can't include
| Usually yes | Often harder |
|---|---|
| Credit cards and store cards | Debts owed to family or friends |
| Personal and car loans | Gambling debts |
| Buy now pay later balances | Large unexplained cash amounts |
| ATO debts | Debts in someone else's name |
| Payday loans | Business debts (needs a business purpose) |
When consolidation isn't the answer
If spending, not interest, is the problem, consolidation just clears the decks for the debts to come back, now with your home at stake. Be honest with yourself. A financial counsellor can help you build a budget first, and we're happy to wait until you're ready.
What you’ll need
- Photo ID
- Statements for every debt to be paid out
- Current home loan statement
- Income evidence
- 3 to 6 months of bank statements
- Council rates notice
Who it usually suits
- Homeowner with equity
- Income that supports the new loan
- Debts the lender can pay out at settlement
- Willingness to close paid-out accounts
- Credit problems explained
