Unlock the secrets to refinancing and consolidating debt

Consolidating personal loans, credit cards, and car debt into your mortgage can reduce your total monthly repayments and save you thousands in interest charges.

If you're juggling credit card payments, a car loan, and a personal loan alongside your mortgage, the combined interest on those debts is often much higher than your home loan rate. Moving those balances into your mortgage through a refinance allows you to pay one repayment at a lower overall rate, which can free up hundreds of dollars each month. The decision depends on how much equity you have, what your current debts cost you, and whether the savings outweigh the application costs and extended loan term.

Why consolidate debt into your mortgage

Debt consolidation through refinancing replaces multiple high-interest debts with a single home loan repayment at a lower rate. Instead of paying 12% to 22% on credit cards and personal loans, you pay your mortgage rate, which is typically much lower. This reduction in interest can improve your cashflow immediately and reduce the total interest you pay over time, provided you commit to clearing the consolidated debt rather than extending it across the full loan term.

Consider a Frankston homeowner with a $400,000 mortgage, a $25,000 car loan, and $15,000 across two credit cards. The car loan charges around 8%, and the credit cards sit between 14% and 20%. Their monthly repayments might total $3,200 across all four debts. By consolidating the $40,000 in consumer debt into their mortgage and accessing that amount from their available equity, they could reduce their total monthly repayment to around $2,700, depending on their mortgage rate and loan term. That's $500 a month back in their pocket, which can be redirected toward savings, living costs, or paying down the mortgage faster.

How much equity do you need to consolidate debt

Most lenders allow you to borrow up to 80% of your property's value without paying lenders mortgage insurance. To consolidate debt, you need enough equity to cover your current mortgage balance plus the debts you want to roll in, while staying under that 80% threshold. If your property is worth $600,000 and you owe $400,000 on your mortgage, you have $200,000 in equity. At 80% lending, you could borrow up to $480,000, which leaves you $80,000 to work with for debt consolidation, minus any refinance costs.

Frankston's median house price has grown steadily over recent years, and many homeowners who purchased in suburbs like Frankston South or Karingal now have significant equity to draw on. If you bought five or more years ago, a home loan health check can confirm how much usable equity you have and whether consolidation makes sense given your current debts and repayment goals.

When debt consolidation makes financial sense

Consolidation works when the interest you save exceeds the cost of refinancing and you commit to clearing the debt within a reasonable timeframe. If you're paying $400 a month in interest across credit cards and personal loans, and refinancing drops that to $150 a month, you're saving $250 every month in interest alone. Over two years, that's $6,000. If your refinance costs $2,000 in application and valuation fees, you're still ahead by $4,000, and that's before accounting for the improved cashflow.

It doesn't make sense if you extend the debt repayment across your full mortgage term without increasing your monthly repayment. A $20,000 credit card balance paid off over five years costs far less in total interest than the same balance spread across 25 years, even at a lower rate. The key is to maintain or increase your total monthly repayment after consolidation, so you clear the consolidated debt quickly while still benefiting from the lower rate.

What debts can you consolidate through refinancing

You can roll most unsecured debts into your mortgage, including credit cards, personal loans, car loans, store credit, and outstanding tax debts. You cannot consolidate debts that are secured against other assets unless you're also selling those assets, such as a car loan on a vehicle you've already sold. Lenders will ask for statements showing current balances and repayment history, and they'll factor those debts into your borrowing capacity even if you're planning to clear them through the refinance.

In Frankston, we regularly see households consolidating multiple buy now, pay later accounts alongside traditional credit products. These don't always show up on a standard credit report, but lenders will ask about them during the refinance application process, and they can affect your borrowing capacity if the balances are high or the repayment pattern is inconsistent.

How consolidating debt affects your mortgage repayment

When you consolidate debt, your loan amount increases, which usually increases your minimum monthly mortgage repayment. However, because you're no longer making separate repayments on high-interest debts, your total monthly outgoings typically drop. The size of the saving depends on how much debt you're consolidating, the interest rates on those debts, and the term you choose for the new loan.

If you consolidate $30,000 in debt and your mortgage repayment rises by $200 a month, but you were previously paying $650 a month across credit cards and personal loans, your monthly saving is $450. That's the improvement in cashflow. To avoid paying more interest over the life of the loan, keep your total monthly repayment at the same level you were paying before consolidation, or higher. The extra amount goes straight to the principal, clearing the consolidated debt faster and reducing the total interest you pay.

Refinancing to consolidate debt and access better loan features

Consolidating debt through a refinance home loan also gives you the chance to switch to a product with features that suit your current situation. If your existing mortgage doesn't have an offset account or redraw facility, moving to a loan that does can help you manage your finances more effectively after consolidation. An offset account linked to your mortgage reduces the interest you pay by offsetting your savings balance against your loan balance, which is particularly useful if you're directing your cashflow savings into that account.

Some lenders also offer lower rates or better serviceability for borrowers who are consolidating debt and improving their financial position. If you've been stuck on a high rate because your lender hasn't offered you a better deal, refinancing for debt consolidation lets you shop around for a lower rate at the same time. Depending on your loan amount, even a 0.3% rate reduction can save you thousands over the course of a year.

The refinance process for debt consolidation in Frankston

The application process for refinancing to consolidate debt is similar to a standard refinance, with a few additional steps. You'll need to provide statements for all the debts you want to consolidate, along with proof of income, your current mortgage statement, and a recent property valuation. Lenders assess your borrowing capacity based on your income, expenses, and the total loan amount after consolidation, so it's important to be transparent about your current financial commitments.

Once your application is approved and your new loan settles, the lender typically pays out your existing mortgage and transfers the funds for debt consolidation directly to your nominated accounts or creditors. You're responsible for confirming that each debt is fully cleared and closing any accounts you no longer need, particularly credit cards, to avoid running up new balances.

Call one of our team or book an appointment at a time that works for you to discuss whether refinancing to consolidate debt suits your situation and how much equity you can access from your Frankston property.

Frequently Asked Questions