Should you consolidate debt into your mortgage? A worked example
When you consolidate debt into your mortgage, you roll credit cards, car loans or personal loans into your home loan at a much lower interest rate. Your monthly payments usually drop a lot. The catch is that spread over 25 years, you can end up paying more total interest, so it works best if you keep paying the old amount and clear the debt fast.
Examples are illustrative: a $25,000 credit card at 20% p.a. repaid over 5 years, a $20,000 car loan at 12% p.a. with 4 years left, and a mortgage rate of 5.00% p.a. over 25 years. Your rates and terms will differ.
Most people who ask me about this are tired. They’re paying a card, a car loan and maybe a personal loan, and the monthly total feels heavy. The mortgage rate is a fraction of what those debts charge, so the idea is tempting.
Sometimes it’s the right call. But how you do it matters more than whether you do.
Consolidate debt into your mortgage: what it does to your payments
Typical consumer rates in 2026 run about 20–25% on credit cards and roughly 8–16% on bank car loans, against a mortgage at around 5%. Here’s an illustrative case.
| Debt | Rate | Monthly payment |
|---|---|---|
| Credit card, $25,000 | 20% | $662 (5 years) |
| Car loan, $20,000 | 12% | $527 (4 years) |
| Total before | $1,189 | |
| Both rolled into the mortgage, $45,000 | 5% | $263 (25 years) |
That frees up about $926 a month, which is why people like it. The total interest on the old debts, paid to the end, is about $20,000.
The trap when you consolidate debt into your mortgage
Now look at the same $45,000 sitting inside a 25-year mortgage. At 5% it costs about $33,900 in interest. That’s roughly $14,000 more than clearing the original debts would have cost. You’ve swapped a hard few years for a long, easy slog.
The fix is simple. Don’t let the monthly saving disappear. Pay the consolidated part down on purpose:
| You pay on the $45,000 | Cleared in | Interest |
|---|---|---|
| $263 a month (minimum) | 25 years | about $33,900 |
| $500 a month | about 9.4 years | about $11,500 |
| $700 a month | about 6.3 years | about $7,500 |
| $1,189 a month (your old total) | about 3.4 years | about $4,100 |
Paying the old $1,189 clears everything in about 3.4 years for roughly $4,100 in interest, compared with about $20,000 the original way. That’s the real prize. The way to do it is to split the loan: keep your main mortgage on a fixed term, and put the consolidated amount in its own portion with a short term or a repayment you set yourself. I explain the mechanics in getting the best from your home loan.
Send me your debts and your mortgage and I’ll show you the numbers both ways, before you decide anything.
Book a free debt review →Will the bank let you consolidate debt into your mortgage?
Often, as a top-up or refinance, if you have the equity and your income supports it. A few things to know:
- Lenders still have to make reasonable inquiries so you can repay without substantial hardship under the Credit Contracts and Consumer Finance Act (CCCFA). The Financial Markets Authority has been the regulator since 1 July 2026, taking over from the Commerce Commission.
- Top-ups count toward the Reserve Bank’s debt-to-income (DTI) limits, and credit card limits count, not just balances. That’s another reason to close cards.
- If you’re also refinancing, see how to refinance a mortgage. Check break fees first, because breaking a fixed rate to do this can erase the saving.
Close the cards, or you’re back where you started
The most expensive version of this is the one where the cards get filled again. Once the balances are cleared, I’d close them, or at least drop the limits right down. Keep one low-limit card for emergencies if you need it. How lenders treat this is covered in credit cards, Afterpay and car loans. If you’re unsure how much equity you can use, start with using home equity.
My debt consolidation page has the full options, including when a personal loan or a separate loan makes more sense than the mortgage.
Before you consolidate
- List every debt with its balance, rate and monthly payment.
- Decide what you’ll actually pay each month once it’s in the mortgage.
- Put the consolidated amount in its own loan portion with a short term.
- Check break fees on any fixed portion you’d be breaking.
- Close or cut the limits on the cards you clear.
Common questions
Is it a good idea to consolidate debt into your mortgage?
Will the bank let me roll debts into my home loan?
Should I close my credit cards after consolidating?
Who regulates debt consolidation lending in NZ?
Read next
Debt consolidation
All the options, and which suits which situation.
Credit cards and car loans
How your other debts affect a home loan application.
How to refinance
The step-by-step process, from break fees to settlement.
Talk it through with Yatin. Free, no obligation, and usually one phone call.
Book a free chat →Or call 022 064 7770
This article is general information only and isn’t personalised financial advice. Figures are illustrative and based on the assumptions shown. Mortgage Sense is a trading name of Yatin Kainth, a Financial Adviser (FSP1007497) providing advice under the Mortgage Managers licence (North West Group Holdings Ltd, FSP682791). See the Disclosure Statement.
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