Debt consolidation into your home loan: the 2026 guide

Published 11 August 2026 · DeMarque Home Loans

Debt consolidation is the most double-edged tool in home lending. Done with a strategy, it cuts both your repayments and your total interest. Done lazily, it converts five years of expensive debt into twenty-five years of cheap debt — and the cheap version ends up costing more. This guide is about getting the good version.

Here’s how it works and where the trap is.

The mechanics

Consolidating means refinancing your home loan to a larger balance and using the extra funds to pay out your other debts — typically credit cards (averaging 18.61% p.a. on interest-accruing balances as at June 2026), personal loans (often around 12%) and car loans (around 9%).

Those balances then sit inside your home loan at home-loan rates — a huge rate drop on every dollar moved.

The worked example

Take $52,000 of typical debts: a $12,000 card at 20%, a $15,000 personal loan at 12%, a $25,000 car loan at 9%. Kept separate, that’s roughly $1,153 a month and about $19,100 in total interest.

Consolidate into a home loan at 6.0% over a remaining 25-year term and the repayment on that $52,000 falls to about $335 a month.

Here’s the trap: stretched over 25 years, that “cheaper” $52,000 now accrues about $48,500 in interest — more than double the separate schedules. The rate went down; the time went up; time won.

The strategy that fixes it

Consolidate for the rate, but keep your total repayments where they were. In the example: keep paying the same ~$1,153 a month against the consolidated balance and the $52,000 is gone in about four and a quarter years, with roughly $7,100 in interest — about $12,000 less than keeping the debts separate, and paid off sooner.

Same tool, opposite outcomes. The debt consolidation calculator models both versions side by side with your actual balances.

What to check before you consolidate

• Equity. The new, larger loan generally needs to stay under 80% of your property’s value, or lenders mortgage insurance can apply and change the maths.
• Security. Cards and personal loans are unsecured; your home loan isn’t. Consolidating means your home now secures those debts — that’s the deal you’re making for the lower rate, and it deserves clear eyes.
• Serviceability. The lender reassesses the whole picture. Sometimes consolidation improves your assessment (fewer commitments, lower outgoings) — we cover this in consolidating when money is tight.
• The habit. Consolidation clears the cards; it doesn’t close them. Paying out a card and keeping the limit is how people end up consolidating twice. Reducing limits or closing cards is part of the job.

Where to start

Run your balances through the calculator, read the real cost of credit card debt if the card is the main event, or go straight to the free home loan health check — it looks at your loan and your debts together, which is exactly the consolidation question.