New research from comparison website Finder has found that Australian homeowners are consolidating debt via their home loan.
On the face of it, rolling a car loan or personal loan into your mortgage can look like an easy win. The monthly repayments are lower. The debt feels tidier. And because home loan rates are often lower than car loan or personal loan rates, it can seem like the cheaper option.
But there’s one big catch: how long you take to pay off the loan.
Even if the interest rate is lower, stretching a short-term debt across a 25-year home loan can make that car, holiday or renovation project cost far more in the long run. It can also leave borrowers more exposed if property values fall.
When cheaper repayments cost more
As of June 2026, the average Australian home loan is $735,000.
Using a typical home loan rate of 6.10% p.a. over a 25-year loan term, that mortgage would have repayments of around $4,781 per month.
Over the life of the loan, the borrower would repay around $1,434,194.
However, the costs can look very different if other debts are added to the mix.
Adding a car to the mortgage
Take a borrower looking to buy a car.
The average car loan in Australia is $37,049. Over five years at 6.59% p.a., that would cost around $726 a month and $43,588 in total once paid off.
Rolling the car into the mortgage instead lifts the monthly repayment from $4,781 to $5,022, an increase of only $241 a month.
On paper, that’s $485 a month cheaper than the separate car loan.
However, that smaller repayment keeps being paid for 25 years, not five. Stretched over the full mortgage term, the car ends up costing $72,293.
That is almost double the original loan amount, and $28,705 more than financing it separately.
Rolling in a personal loan
It’s a similar story with personal loans.
The average personal loan taken out in Australia is $27,719. A five-year loan at 6.2% p.a. would cost around $538 a month and $32,308 in total.
Added into the mortgage, it only increases the monthly repayment by $180.
But because it is repaid over the life of the home loan, it costs $54,087 in total, which is $21,779 more than the standalone personal loan.
The short-term saving versus the long-term cost
| Debt rolled in | Loan amount | Standalone monthly cost | Standalone total cost | Added monthly cost in mortgage | Total cost in mortgage | Extra cost from consolidating |
|---|---|---|---|---|---|---|
| Car loan | $37,049 | $726 | $43,588 | $241 | $72,293 | $28,705 |
| Personal loan | $27,719 | $538 | $32,308 | $180 | $54,087 | $21,779 |
In both cases, the total cost works out to almost double the original loan amount. Together, the two would add over $50,000 to the cost of the mortgage. Despite a lower interest rate, stretching the debt over 25 years adds far more in extra repayments than it saves.
The impact of falling property prices
Rolling short-term debt into the mortgage doesn't just increase the long-term cost of the debt. It also increases the loan balance secured against the home.
If the property value falls, the gap between what the home is worth and what the borrower owes can shrink quickly.
That is especially relevant now, with some of the country’s biggest housing markets forecast to soften.
CBA's latest forecast predicts Sydney property prices will fall by 6% through 2026, while Melbourne prices are expected to fall by 7%.
For homeowners with years of equity built up, a price fall may not be a major issue. But it creates real risk for those with smaller deposits, recent purchases or already high loan balances. In some cases, this can tip a borrower into negative equity, where they owe more than the property is worth.
For example, a Melbourne borrower taking out the average $735,000 home loan with a 10% deposit would be buying a property worth around $816,667.
If they fold a $37,049 car loan into that, their loan balance rises to $772,049. If they were to instead add a $27,719 personal loan to the mortgage, it would increase to $762,719. Rolling in both brings it to $799,768.
Should Melbourne prices then fall by CBA’s forecast 7%, the property’s value would drop to around $759,500.
Here's what that means for the borrower's equity:
| Scenario | Loan balance | Equity position after 7% fall |
|---|---|---|
| Mortgage only | $735,000 | +$24,500 |
| Mortgage + car loan | $772,049 | –$12,549 (negative equity) |
| Mortgage + personal loan | $762,719 | –$3,219 (negative equity) |
| Mortgage + car loan + personal loan | $799,768 | –$40,268 (negative equity) |
Without the extra loans rolled in, the borrower still has around $24,500 in equity in their home. However, adding a personal loan pushes them into negative equity. That means if they needed to sell, the sale proceeds would not cover the mortgage in full. They may also struggle to refinance to a better rate.
Is the lower repayment worth the long-term cost?
Debt consolidation can ease financial strain, simplify repayments and reduce short-term stress for borrowers under cash flow pressure. However, it shouldn't be treated as an automatic discount. Before folding a car loan or personal loan into a mortgage, it's worth considering a few things:
- How much of the mortgage term is left. The examples above assume 25 years still to run. A borrower with only a few years left on their mortgage faces a much smaller cost difference, since the debt isn't being stretched over decades.
- Whether extra repayments are an option. A 25-year home loan term doesn't mean the car or other personal loan debt has to take 25 years to repay. A borrower who keeps making additional repayments roughly equivalent to what a standalone loan would have cost can pay off that portion within a shorter window, taking advantage of the lower mortgage rate without inflating the total cost.
- What it does to the equity buffer. As shown above, rolling debt into a mortgage increases the loan balance secured against the home, which matters if property prices fall. Borrowers should consider whether they would still have enough equity if property prices fell, particularly if they plan to sell or refinance.
- Whether a better deal exists elsewhere. Refinancing the car loan or personal loan on its own, or comparing other consolidation options, may secure a lower rate without extending the term. It's worth comparing the total cost of these alternatives against folding the debt into the mortgage before deciding.
Looking past the monthly repayment is the difference between using consolidation as a useful tool and using it as an expensive way to make a repayment look smaller than it really is.
