What is Debt Consolidation? 

Debt consolidation means putting all or some of your debts together into your home loan, giving you a single, easier monthly payment at a lower interest rate. 

How Much Can I Borrow? 

• If you have a clean credit history and timely payments, you can borrow up to 95% of the property value. 
• If you’ve missed payments but caught up in the last 6 months, you can borrow up to 80%. 
• If you’ve faced serious credit issues, you can borrow up to 75%. 

Interest Rates Available: Standard home loan rates apply if approved with a major lender. If you have bad credit, specialist lenders might approve you at a higher interest rate. After a year or two, you may switch to a major lender with a lower rate. 

What is a Debt Consolidation Home Loan? It allows you to merge existing debts into your mortgage. This is often chosen if your mortgage interest rate is lower than other loans. Your home secures the loan, and you make a single monthly payment for all your debts. 

Why Should I Consolidate My Debt? 

• Simplifies managing multiple loans. 
• Eases the burden of overwhelming bills. 
• Can prevent signing a debt agreement. 
• Aids in regaining financial control and reducing debt. 

What Debts Can I Consolidate? Typically, high-interest unsecured debts like credit cards, personal loans, car loans, ATO tax debts, and buy now pay later services can be consolidated. 

Do I Qualify for a Debt Consolidation Loan? Lenders consider: 

• On-time home loan repayments for the past 6 months. 
• On-time credit card and personal loan repayments for the past 3 months. 
• No missed repayments with the applying bank. 
• Strong financial position, stable employment, good credit history, and proof of future debt control. 

Specialist lenders may consider bad credit but with higher interest rates. 

Was This a One-Off Event? Lenders assess if missed repayments or bad credit resulted from a one-off event like divorce or job loss. Explaining this is crucial. 

How Much Debt Can I Consolidate? Major lenders allow consolidating up to five different debts, with amounts ranging from $50,000 to $100,000. Specialist lenders have no limit if there’s enough property equity. 

Pros and Cons of Debt Consolidation: Pros: 

• Standard home loan rates if approved with a major lender. 
• Potentially more affordable repayments. 
• Improved cash flow and savings. 
• Reduced stress, effective debt management. 
• Protection against creditor pursuit. 

Cons: 

• Converting unsecured debts into secured debt. 
• Extended loan term, paying more interest. 
• Potential impact on interest rate due to altered loan to value ratio (LVR). 
• LVR above 80% may require Lenders Mortgage Insurance (LMI) or risk fees. 
• Possible set-up fees for a new home loan package. 

Tips for Managing Debt: 

• Use budgeting tools to track spending. 
• Pay off refinanced debt promptly. 
• Close old credit card accounts. 
• Seek professional advice for breaking poor spending habits. 

FAQs – Debt Consolidation Loan: What if I Don’t Have Enough Equity?

Options may exist, including applying to write off part of the debt. 

Can First-Time Home Buyers Consolidate Debt?

Yes, using a guarantor, they can borrow up to 110% of the property value. 

Should I Worry About Interest Rates?

Home loan rates are generally lower than unsecured debts. Specialist lenders might have higher rates initially, but refinancing is an option.