Managing several debts at once can feel like spinning plates. Credit cards, car loans, personal loans—they all come with different due dates, rates, and terms. It’s no wonder so many Aussies are considering rolling these debts into their mortgage. On paper, it sounds like a smart move: fewer repayments, one interest rate, and potentially lower monthly costs. But, like any financial strategy, it comes with risks. Done the wrong way, it could end up costing you more over time.

This guide explores the common mistakes people make when consolidating debt into their home loan and how to sidestep them.

Understanding What It Means to Consolidate Debt Through Your Mortgage

Debt consolidation involves refinancing your existing mortgage and adding other outstanding debts to it—like credit card balances or personal loans. The big drawcard is the lower interest rate home loans typically offer compared to high-interest consumer debt. Sounds like a win, right?

Well, yes and no. If you’re not careful, you could stretch short-term debts over 20 or 30 years, paying more interest in the long run. It’s a strategy that can work in your favour, but only if it’s part of a broader financial plan.

Common Mistakes That Can Undo the Benefits

Focusing Only on Lower Monthly Repayments
Rolling multiple debts into your mortgage can cut your monthly outgoings—but extending that $8,000 credit card bill over a 25-year loan term could mean you pay far more interest than if you cleared it within a few years.

How to avoid it: Always look at the big picture. Use loan calculators to compare your total repayment costs before and after consolidation. You might find the short-term relief isn’t worth the long-term expense.

Forgetting About Refinancing Costs
Switching to a new mortgage isn’t free. Between discharge fees, loan setup costs, and possible break fees on fixed-rate loans, the expenses can chip away at any savings you might make.

How to avoid it: Ask your lender for a full breakdown of refinancing fees upfront. This way, you can weigh up if consolidating your debt still makes financial sense once all costs are considered.

Not Addressing the Underlying Spending Habits
Debt consolidation can help you get ahead, but if poor budgeting or overspending is what got you into debt in the first place, you’re likely to end up in the same position again—just with a bigger home loan.

How to avoid it: Treat consolidation as a fresh start. Review your income and spending with a realistic budget. Tools like home loan calculators or setting savings goals can help build better financial habits.

Ignoring the Loan-to-Value Ratio (LVR)
When you add debts to your mortgage, your loan amount increases. If your LVR creeps above 80%, you might be hit with Lenders Mortgage Insurance (LMI) or be offered a higher interest rate.

How to avoid it: Work out your LVR before refinancing. Keeping it below 80% can help you secure better loan terms and avoid extra fees. If you’re close to the threshold, consider paying down a portion of your debt first.

Sticking With Your Current Lender Without Comparing Offers
Loyalty doesn’t always pay off. While it’s convenient to refinance through your current bank, other lenders might offer better rates, more flexible terms, or features that suit your financial goals better.

How to avoid it: Use a mortgage broker or an online comparison tool to explore your options. Wealthy You works with a panel of lenders and can help find competitive deals tailored to your situation.

Using Equity Without a Plan
Tapping into your home equity to consolidate debt can be risky if you don’t have a clear plan for how to manage it. Equity isn’t a bottomless resource, and mismanaging it could leave you vulnerable if your financial situation changes.

How to avoid it: Treat equity like any other financial asset—use it strategically and responsibly. Work out a plan for repaying the added loan amount and consider how future needs (like renovations or school fees) might affect your equity.

Trying to Go It Alone
Home loan refinancing and debt consolidation involve more than filling out a few forms. Without expert advice, you might overlook important terms or miss out on savings.

How to avoid it: Talk to a mortgage broker or financial adviser before making big changes. They’ll help you understand the pros and cons and make sure you're not missing anything critical.

The 2025 Outlook: What to Watch Out For

As of 2025, interest rates have remained relatively steady after the RBA’s last adjustment in late 2024. Many Australians are still dealing with high cost-of-living pressures, making debt consolidation a tempting solution. But it's more important than ever to ensure the strategy truly benefits your long-term financial health.

Rising property values across Sydney, Melbourne, and Brisbane have also given homeowners more equity to work with—but this shouldn’t be seen as a green light to stack on more debt without a strategy.

Why Wealthy You Offers More Than Just Loan Access

At Wealthy You, we go beyond just securing a home loan. Our brokers help you evaluate your financial situation holistically and provide guidance on whether debt consolidation is right for you.

From understanding your LVR to identifying hidden refinancing costs, we help you avoid the common traps and make confident, informed decisions. For more insights, check out our guide on refinancing a mortgage or managing your mortgage repayments.

 

 

Final Thoughts: Because "Debt-Free" Shouldn’t Mean "Equity-Drained"

Debt consolidation through your mortgage can absolutely be a smart move—but only if you go in with your eyes open. From hidden fees to long-term interest costs, it’s easy to fall into traps that leave you worse off.

With the right guidance and a solid plan, you can use your home loan to simplify your finances and reduce your debt burden. Just make sure you're consolidating your debt, not your financial mistakes.

FAQs

Is debt consolidation through my mortgage a good idea in 2025?

It can be, especially if it lowers your interest rate and simplifies your repayments. But it depends on your financial situation, goals, and discipline. Always calculate the total cost over the life of the loan.

Does consolidating debt hurt my credit score?

There might be a small dip when you apply for refinancing, but paying off your debts consistently afterwards can actually improve your credit over time.

Can I include all my debts in a mortgage refinance?

Generally, unsecured debts like credit cards and personal loans can be rolled in. Some secured loans (like car finance) may need a separate review. Always check with your broker.

What risks should I be aware of?

The main risk is turning unsecured debt into secured debt. If you default on your mortgage, your home is on the line. Also, long loan terms can mean paying more interest overall.

How can I check if my current lender offers this option?

Most major lenders offer refinancing products that include debt consolidation, but the terms vary. It's wise to compare offers across multiple lenders before deciding. Brokers can help streamline this.

 

 

If you have any questions or need further assistance, please contact us.

info@wealthyyou.com.au

☎️ (02) 7900 3288