I'm Jason Birks, a Brisbane mortgage broker. I spent over ten years lending at Westpac and NAB before starting Birks Financial Group, and I compare more than 60 lenders. I help homeowners use the equity in their home to tidy up other debts, and I'll tell you honestly when it isn't worth doing.
How debt consolidation works
You refinance or increase your home loan and use the extra to pay out your other debts. Instead of several repayments at personal loan and credit card rates, you have one repayment at a home loan rate, which is usually much lower.
The trap to avoid
A car loan might have four years left. Rolled into a 30-year home loan, it gets spread over decades, and you can end up paying more interest in total even at a lower rate. The fix is simple: keep paying roughly what you were paying before, or set the consolidated amount up as its own split with a shorter term, so it's gone in the same time or sooner.
When it makes sense
- You have enough equity, usually keeping the loan at 80% of the property's value or less to avoid LMI
- Your other debts are at much higher rates, such as credit cards or personal loans
- You'll close the cards you pay out, so the balances don't build up again
- Your income comfortably supports the new loan
What lenders look at
- Equity. How much you can borrow against your property, based on the lender's valuation. Try my equity calculator.
- Your conduct. Lenders look at how you've managed the debts being consolidated, and missed payments make it harder.
- Lender policy. Some lenders cap how much can be consolidated or how many debts. Others are more flexible.
Questions people ask
Can I consolidate debt into my home loan?
Usually, if you have enough equity and your income supports the loan. Most lenders allow it, with different limits.
Will consolidating debt save me money?
It lowers your rate and repayments, but you only save overall if you pay it off in a similar timeframe. Spreading a short debt over 30 years can cost more.
Can I consolidate a tax debt?
Some lenders allow it. See my ATO debt guide.
Does debt consolidation hurt my credit score?
The refinance adds an enquiry to your credit file, but paying out and closing other debts can help your position over time.
