Debt consolidation explained
When it works, when it does not, and how to structure it.
Debt Consolidation Calculator
Rolling other debts into your home loan almost always lowers what you pay each month. Whether it lowers what you pay in total is a different question, and this shows you both.
Is that number right for your situation?
A calculator applies one formula. Lenders apply their own, and they disagree with each other. Send us what you worked out and we will tell you how it looks against real lender policy.
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The trade-off in one screen
The monthly saving is real and immediate. The two figures beneath it are the ones that decide whether consolidating was a good idea: what the debt costs in interest if you stretch it across your remaining mortgage term, versus what it costs if you simply clear it on its current schedule.
A lower rate over a much longer term frequently produces more total interest, not less. That is the whole catch, and it is why the monthly saving on its own tells you almost nothing.
How to get the saving without the cost
Consolidate, then keep paying what you were paying before. The monthly saving becomes an extra repayment rather than extra spending money, the consolidated debt clears in years instead of decades, and you keep the lower rate. The extra repayments calculator shows what that does.
Better still, ask for the consolidated portion to be set up as a separate split over five to seven years rather than absorbed into the main balance. Then the structure does the work and no discipline is required. Most lenders will not propose this; it is more effort for them and earns them less. Full detail on the debt consolidation page.
Common questions
The application creates an enquiry, and closing accounts changes your file, but clearing defaults and reducing missed payments helps over time. If you are already at risk of missing payments, consolidating early is generally better for your file than waiting.
Rarely sensible. HECS is repaid through the tax system at a rate tied to your income and carries no interest in the conventional sense. See our HECS and home loans page for how lenders treat it.
Yes. The new total loan generally needs to stay at or below 80% of your property value, otherwise Lenders Mortgage Insurance applies and can outweigh the benefit.
Speak to your lender about hardship provisions before missing a payment, and consider free financial counselling through the National Debt Helpline on 1800 007 007. We would rather point you there than arrange a loan that does not help.
We will show you both numbers
And tell you when consolidating is the wrong answer, which happens more often than you might think.
Related
Refinancing
Consolidation is a refinance, so the same process applies.
Borrowing power calculator
How clearing debts changes what you can borrow.