Insights
Combining several debts into one home loan can simplify repayments and reduce the rate on some balances. The real test is whether it lowers the total cost without stretching short-term debt over decades.
If you have a home loan plus credit cards, a personal loan, car finance or more than one property loan, it can be tempting to roll everything into one facility. In some situations, refinancing several debts can simplify cash flow and reduce the interest rate being paid on higher-cost debt.
But a smaller monthly repayment does not automatically mean a cheaper outcome. The new loan term, switching costs, available equity and the security behind the debt all matter. The goal should be a structure that improves the overall position, not just one that makes this month feel easier.
Potentially, yes. A lender may allow eligible debts to be paid out as part of a home-loan refinance, provided you have enough usable equity, can meet the lender’s serviceability assessment and the proposed structure fits its policy.
This is often called debt consolidation. It may involve moving several debts to one lender, or restructuring multiple facilities while keeping separate loan splits for clearer tracking. The best structure depends on what each debt was used for, how quickly you want it repaid and whether tax treatment needs to remain easy to identify.
Depending on the lender and the full application, debts considered for consolidation may include:
Not every debt should automatically be combined. Business debts, tax debts, novated leases and debts with another borrower can require different treatment. Investment and private debt may also be better kept in separate splits so the purpose and records remain clear. Ask your accountant or tax adviser about tax treatment rather than relying on the loan structure alone.
The most obvious benefit is simplicity: fewer lenders, repayment dates and account fees to manage. If high-interest unsecured debt is moved to a lower-rate home-loan facility, the required repayment may also fall.
A refinance can also be an opportunity to review the home loan itself. You may be able to compare the rate, offset or redraw features, repayment flexibility and whether the remaining loan term still matches your plan.
Before switching, compare the total cost rather than the advertised rate alone. Moneysmart recommends checking discharge, application and switching fees, possible fixed-rate break costs, lender’s mortgage insurance and the length of the new loan.
A credit card or car loan may have a higher interest rate than a home loan, but it may also have been scheduled to finish much sooner. Rolling that balance into a 25- or 30-year mortgage and making only minimum repayments can mean paying interest on it for far longer.
One way to address this is to use separate loan splits and set a deliberate repayment period for the consolidated portion. For example, a split containing former personal debt could be repaid over five years even if the main home loan runs for longer. The structure only helps if the repayment behaviour supports it.
Credit cards and many personal loans are unsecured. A home loan is secured against property. Moving unsecured debt into the mortgage may reduce the interest rate, but it also puts the home behind that debt. If repayments cannot be maintained, the property can ultimately be at risk.
It is also important to reduce or close unused credit limits where appropriate. Paying out a card and then building the balance again can leave you with the larger mortgage and new card debt at the same time.
A lender will usually look at the current property value, the amount required to pay out all facilities, the resulting loan-to-value ratio, income, living expenses, credit conduct and the reason for the refinance.
If the new loan is above certain LVR thresholds, lender’s mortgage insurance or a higher rate may apply. Some lenders also have specific rules for cash-out and debt consolidation. A lower proposed repayment does not remove the need to pass a full serviceability assessment.
You can use the borrowing power calculator for a rough starting point and the loan repayment calculator to compare repayment scenarios. Calculators are estimates; a lender will use its own assessment method.
Before proceeding, ask to see the current and proposed positions side by side:
Our guide to offset accounts versus extra repayments can also help when deciding how spare cash should sit once the new structure is in place.
It may not be worthwhile if switching costs outweigh the savings, the refinance extends debt for too long, the new lender requires expensive mortgage insurance, a fixed-rate break cost is high, or the underlying budget problem has not been addressed.
If repayments are already difficult, speak with your lenders’ hardship teams early. Free financial counselling is also available through the National Debt Helpline. A refinance is not a substitute for independent debt advice.
Gather the latest statements for every loan and card, note the limits as well as the balances, and decide which facilities you want to keep. A broker can then compare a simple refinance, a split-loan consolidation and staying with the current lender so you can see which option genuinely improves the numbers.
Potentially. It depends on usable equity, serviceability, credit history and the lender’s debt-consolidation policy. The costs and new repayment term should be compared before proceeding.
Not automatically. A lower repayment may help cash flow, but the lender still assesses the full application, credit limits, expenses and the proposed new loan.
It can be if the rate and fees are lower and the debt is repaid within a sensible timeframe. It can cost more if short-term debt is extended across a long mortgage term.
The lender may require limits to be reduced or accounts closed. Even where it does not, keeping unused limits can affect borrowing capacity and make it easier to build the debt again.
They may be refinanced with one lender, but separate splits are often useful for record keeping and loan-purpose clarity. Ask your tax adviser about tax treatment.