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Using your home loan to consolidate debt

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With the cost of living continually increasing, some mortgage holders may find it difficult to managing their finances and as a result, can become overwhelmed with financial commitments.

According to finder.com.au, the combined personal loan and credit card debt of Australia is at the highest level in almost four years. A study of more than 500 personal loan applications through finder.com.au revealed that 53% of people were looking to cover bills.

Michelle Hutchison, Money Expert at finder.com.au, believes these statistics are very confronting.

"It's daunting to see that Australians are taking out personal loans and using their plastic to fund unsustainable lifestyles. Paying for bills on a personal loan could leave you with an even bigger debt, as you'll have those initial amounts to pay off as well as additional interest."

The issue of consolidating debt into a personal loan or credit card is that the interest rate on these can be a lot higher than say home loan interest rates. A larger chunk of the extra you pay can be eaten up in interest charged, making it take longer to pay them out.

But there is another option to help ease this financial strain and get back on track with your finances. Consolidating debt is a common option for many mortgage holders. This is done by increasing your home loan to payout all your debts and get some much needed breathing space. You can then focus on one repayment instead of many repayment deadlines. This can not only save interest, but it can help make managing your finances much easier.

Before you consider refinancing to consolidate, you will need to think about whether you are going to refinance with your current lender or apply with another lender. This is a great time to review your home loan and do your research on what other options are available. Are there home loans with more competitive interest rates? Are there home loans with more features that can help pay off your home loan sooner? Look for features like offset accounts, ability to pay extra and free redraw, which give you the ability to get your spare cash working for you saving interest on your home loan.

While you are doing your home loan research, ensure that you are making at least the minimum repayments on all your debts and that these are done on time. Lenders will want to see around 3 months’ statements on your debts when you consolidate and you also don’t want to risk defaults or poor repayment history to appear on your credit report.

To consolidate debt into your home loan you will need to have equity. Most lenders will increase your loan to 80% of the value of the property without mortgage insurance or up to 90% with mortgage insurance. This means that the current value of your property is pivotal in determining if it is possible at all. The State Custodians Free Property Report can give you an idea of what properties in your area have sold for recently, which can help you determine what your property might be worth.

Once the loan settles your focus should be on fast tracking repayments to pay this extra debt off. Many borrowers often slip back into old habits and pay just the minimum repayment amount. Spreading your credit card bill or personal loan over a 25 or 30 year loan term will mean that you will end up paying thousands of extra dollars in interest. So if you do consolidate your debt, speak to your lender about having the consolidated debt ‘split’ from your home loan or put into a separate account. This way it will still be under the same interest rate, however it will also have its own statements and repayments, so you don’t forget the debt is still there. You can then focus on paying this off quickly so that you reap the benefits of combining your debts.

State Custodians has a range of home loans which can be divided into portions and also have features like offset accounts and free redraw. So, if you wish to keep your debt separate from you home loan in order to pay it off sooner, you can.

The most important thing to remember is not to fall into this same trap again. If you have to consolidate your debt then, as soon as it is paid out then cancel credit cards and interest free facilities so you don’t risk these building up again.

If you are interested in refinancing to consolidate your debt get in contact with State Custodians. We have a range of home loan options available and market leading interest rates.


It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan

Anouska Linz

Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.

For more information on our home loans, visit www.statecustodians.com.au or call 13 72 62.

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