Top tips to refinance your home loan & clear debt faster

If you're carrying credit card debt, a car loan, or personal loan repayments alongside your mortgage, refinancing to consolidate that debt into your home loan could cut your monthly outgoings by hundreds of dollars.

Why consolidate debt into your mortgage

Consolidating higher-interest debts into your home loan replaces multiple repayments with a single, lower-rate facility. Credit cards typically charge 18% to 24% per annum, while home loan rates sit much lower, meaning the same debt costs you less each month and you clear it sooner if you maintain similar repayment levels. In our experience, Bulimba residents with investment properties or older mortgages often carry debts accumulated over time without realising how much interest they're paying across multiple accounts.

Consider a homeowner with a $450,000 mortgage, a $25,000 car loan at 8%, and $15,000 across two credit cards at 21%. The car loan costs around $510 per month, the credit cards require minimum repayments of roughly $450, and the mortgage sits at around $2,400. That's $3,360 in total debt servicing. Rolling the $40,000 in consumer debt into the mortgage at current variable rates reduces the combined monthly commitment by approximately $600, depending on the loan structure and any offset balance.

When debt consolidation makes sense

Refinancing to consolidate debt works when the interest you save outweighs the cost of extending shorter-term debts over a longer period. It's most effective if you maintain or increase your total monthly repayments after consolidation, paying down the principal faster than the original loan term would allow. If you drop your repayments and stretch the debt across 30 years, you'll pay less each month but more over time.

Debt consolidation through refinancing suits homeowners who have built equity in their property, can demonstrate steady income, and want to regain control of cashflow without extending their overall debt timeline. It doesn't suit someone planning to continue accumulating credit card debt after consolidation, because the underlying spending pattern remains unaddressed.

How much equity you need to consolidate debt

Lenders typically allow you to borrow up to 80% of your property's value without paying lender's mortgage insurance, though some will lend to 90% or 95% with LMI included. To consolidate debt, you need enough equity to cover your existing mortgage balance plus the debts you want to roll in, while staying within that borrowing limit.

Bulimba's median property values have risen steadily over the past decade, meaning many homeowners who purchased five or more years ago now hold significant equity. If your property is worth $900,000 and your mortgage sits at $450,000, you have $450,000 in equity. Borrowing 80% of the property value gives you access to $720,000, leaving $270,000 available to consolidate debts or fund other needs. A loan health check will confirm your current equity position and whether consolidation is viable without incurring LMI.

The refinance process for debt consolidation

The refinance application requires proof of income, recent mortgage statements, details of all debts you want to consolidate, and a property valuation. Lenders assess your ability to service the higher loan amount at current rates, plus a buffer of around 3%, to ensure you can manage repayments if rates rise.

Once approved, the new lender pays out your existing mortgage and the nominated debts directly, leaving you with a single loan and one repayment. Settlement usually takes four to six weeks from application, depending on the lender's workload and the complexity of your financial position. If your debts sit with the same bank as your mortgage, an internal refinance can sometimes move faster, though it's worth comparing whether another lender offers a lower rate or offset account that improves your overall position.

Offset accounts and maintaining financial discipline

An offset account linked to your refinanced loan reduces the interest charged each day by the balance held in the account. If you consolidate $40,000 in debt into your mortgage and then redirect the $960 you were paying on the car loan and credit cards into an offset, you reduce the effective loan balance and pay less interest while keeping those funds accessible.

This approach only works if you treat the offset as a repayment tool, not a spending account. The discipline that makes debt consolidation effective is maintaining or exceeding your previous total repayments after refinancing. If you were paying $3,360 per month before consolidation and your new mortgage only requires $2,760, putting the $600 difference into offset or making additional repayments ensures you clear the debt faster than the original loan term.

Scenarios where consolidation isn't the right move

Refinancing to consolidate debt doesn't suit every situation. If you're close to paying off a car loan or personal loan within the next 12 months, rolling it into a 30-year mortgage extends the repayment period unnecessarily unless you commit to clearing it quickly through offset or extra repayments. Similarly, if your spending habits haven't changed and you're likely to rebuild credit card balances after consolidation, you'll end up with both a higher mortgage and new consumer debts.

Consolidation also relies on having sufficient equity and serviceability. If property values in Bulimba have remained flat since you purchased, or if your income has dropped, you may not have enough borrowing capacity to roll debts in without paying LMI or being declined. In those cases, focusing on paying down high-interest debts directly while keeping your mortgage separate might be the more practical path.

Refinancing when your fixed rate ends

Many Bulimba homeowners who fixed their rates a few years ago are now coming off fixed rate periods and reverting to higher variable rates. If you're in this position and also carrying consumer debts, refinancing offers an opportunity to secure a lower variable rate and consolidate at the same time. The two goals align well because you're already moving your loan, so adding debt consolidation doesn't create extra disruption.

Lenders are more willing to offer competitive rates to borrowers with strong equity and clear repayment history. If your fixed period is ending in the next three months, start the refinance process now so the new loan settles before you revert to a higher rate. Combining a rate reduction with debt consolidation can reduce your monthly outgoings by several hundred dollars while simplifying your finances into a single facility.

Call one of our team or book an appointment at a time that works for you. We'll review your current mortgage, calculate how much equity you can access, and structure a refinance that consolidates your debts without extending your overall repayment timeline.

Frequently Asked Questions