Debt Consolidation with Your Mortgage
Roll high-interest debts into your mortgage and save thousands on interest. Learn if debt consolidation is right for you.
Calculate Your SavingsWhat is Debt Consolidation?
Debt consolidation means combining multiple debts (credit cards, personal loans, car finance) into one larger loan - typically your mortgage. Because mortgage rates are much lower than credit card or personal loan rates, you can save significant money on interest.
Example: Consolidating $50,000 of Debt
Before Consolidation
After Consolidation
How Debt Consolidation Works
Calculate Your Total Debt
Add up all debts you want to consolidate: credit cards, personal loans, car finance, hire purchases. Don't forget to include any early repayment penalties.
Check Your Home Equity
You need sufficient equity → in your property to refinance. Most banks require you to maintain at least 20% equity after consolidation (ideally more to avoid low equity premiums).
Refinance Your Mortgage
Apply to increase your mortgage by the debt amount. The bank pays out your debts directly, and you repay everything through one mortgage payment at a much lower rate. Learn about refinancing →
Start consolidation applicationClose Old Accounts
Once debts are paid, close credit card accounts and cancel unused credit facilities. This prevents you from running up debt again and improves your financial discipline.
Pay Off Faster
Use the money you were spending on high-interest debt to make extra mortgage repayments. This accelerates debt freedom and saves even more on interest.
Interest Rate Comparison
The massive difference in interest rates is why debt consolidation can save so much money.
Credit Cards
Retail cards can be even higher (25-29%)
Personal Loans
Unsecured consumer lending
Car Finance
Secured against depreciating asset
Mortgage Rates
Secured against property
Why the huge difference? Mortgages are secured against property (lower risk for lender), have longer terms, and involve much larger amounts. Credit cards and personal loans are unsecured with high default rates, so lenders charge premium rates.
Pros and Cons of Debt Consolidation
Advantages
- ✓
Massive Interest Savings
Save thousands per year by dropping from 20%+ to 6-7%
- ✓
One Simple Payment
Replace multiple payments with one mortgage payment
- ✓
Lower Monthly Payments
Spread debt over longer term reduces monthly obligations
- ✓
Improve Cash Flow
Free up money for savings or emergency fund
- ✓
Better Credit Score
Paying off credit cards improves credit utilization ratio
- ✓
Tax Deductible (Sometimes)
If refinancing investment property, interest may be deductible
Disadvantages
- ✗
More Total Interest Long-Term
Spreading debt over 25 years means more interest than 3-5 years
- ✗
Risk to Your Home
Unsecured debt becomes secured - you could lose house if you default
- ✗
Refinancing Costs
Legal fees, valuation, potential break fees ($1,500-$3,000+)
- ✗
Temptation to Reoffend
Empty credit cards can tempt you back into debt
- ✗
Reduces Home Equity
Increases mortgage balance, reducing equity cushion
- ✗
Not Treating Root Cause
Doesn't address spending habits that created debt
When Debt Consolidation Makes Sense
Good Reasons to Consolidate:
- You have at least 30% equity in your home (to maintain 20% after consolidation)
- Your high-interest debt totals $15,000+ (worth the refinancing costs)
- You're committed to closing credit cards and not running up debt again
- You'll make extra repayments to pay off the consolidated debt quickly
- You have stable income and can easily afford new mortgage payment
- The debt was from one-off circumstances (medical, emergency) not ongoing overspending
Bad Reasons to Consolidate:
- You'll keep using credit cards after consolidating (recipe for worse debt)
- You have minimal equity (less than 25%) - won't be approved anyway
- You haven't addressed overspending habits - you'll just accumulate more debt
- The debt is small (under $10,000) - not worth refinancing costs and hassle
- You're planning to sell your house soon - refinancing costs won't be recouped
Alternatives to Mortgage Consolidation
Debt consolidation isn't always the best solution. Consider these alternatives:
Debt Avalanche Method
Pay minimum on all debts, then throw extra money at the highest interest debt first. Once that's paid, move to the next highest rate. This saves maximum interest.
Best for: Disciplined people who can manage multiple payments
Balance Transfer Credit Card
Transfer credit card debt to a 0% or low-rate promotional card (6-12 months). Aggressively pay down while interest-free, then close the card.
Best for: Credit card debt under $15K that you can pay off within promotional period
Personal Consolidation Loan
Take a personal loan at 9-12% to pay off credit cards at 20%+. Lower rate than cards but higher than mortgage, and unsecured (doesn't risk your house).
Best for: People without home equity or smaller debt amounts
Debt Management Plan
Work with a budgeting service (like FinCap or MoneyTalks) to negotiate with creditors and create a payment plan. Often free or low-cost.
Best for: People struggling to manage payments or needing external accountability
Budget Hard and Attack Debt
Cut expenses to bare minimum, increase income, and pay down debt aggressively without consolidating. Requires discipline but avoids refinancing costs.
Best for: Small-moderate debt amounts that can be cleared in 12-24 months
Debt Consolidation FAQs
How much equity do I need to consolidate debt into my mortgage?
Most banks want you to maintain 20% equity after consolidation. So if you want to consolidate $40K, you need at least 30-35% equity beforehand. Some banks will go to 15% equity but charge low equity premiums.
Will debt consolidation affect my credit score?
Initially yes - there'll be a small dip from the credit inquiry. However, paying off credit cards improves your credit utilization ratio, which helps your score long-term. Within 6-12 months, your score typically improves if you manage payments well.
What are the costs of refinancing for debt consolidation?
Expect $1,500-$3,000 total for legal fees ($800-$1,200), valuation ($500-$800), and discharge fees ($200-$500). Some lenders offer cashback that can offset these costs. Break fees may apply if you're breaking a fixed-rate term early.
Should I close my credit cards after consolidating?
Yes, close most of them. Keep one low-limit card for emergencies and online purchases, but close the rest. This prevents the temptation to run up debt again and shows banks (and yourself) you're serious about staying debt-free.
How quickly should I pay off consolidated debt?
Aim to pay it off within 5-7 years maximum, not the full mortgage term. Treat it like a personal loan - make extra repayments using the money you were spending on high-interest debt payments. Set up a separate loan split to track this portion.
Can I consolidate debt if I'm self-employed?
Yes, but it's more challenging. You'll need 2 years of financial statements showing strong income, and banks will be more conservative about how much they'll lend. Working with a mortgage broker experienced in self-employed lending is highly recommended.
Calculate Your Debt Consolidation Savings
Find out how much you could save by consolidating your debts into your mortgage
Get Started NowLast updated: May 21, 2026 | Rates verified against lender carded-rate pages + RBNZ