Frequently, potential home loan borrowers have the baggage of existing debt, whether that be unpaid credit cards, personal loans or car loans.

By consolidating these debts into your home loan, you can significantly reduce the amount of interest you pay since the interest rate on your home loan is usually much lower than on credit cards or personal loans.

As well as the interest rate savings you make, you will reduce the hassle of making those multiple repayments by replacing them with a single, regular loan repayment – weekly, fortnightly or even monthly.

The simplest way to accomplish this is when refinancing an existing home loan.  To do this you need to have sufficient equity in the property to absorb the extra debt to pay off those personal debts.

It is equally as easy to do this during a purchase if you have sufficient cash to pay out the debt.  It may mean a higher LVR and a higher home loan repayment but the overall reduction in total repayments should more than offset this.

The final option is to do this in combination with a Security Guarantee loan.  Currently, the maximum debt consolidation permitted by any lender is 5% of the purchase price.  This may be a limiting factor for some ,but clearing one loan can be the difference between servicing and not servicing.

It should be noted that you spread repayments over a far longer period than a personal loan so you could pay out more in the long run.  At the same time, it is wise to refrain from starting up other personal loans/credit.  If you are in debt because you spent too much money, you should be careful with spending otherwise you may get back into debt again but with a larger mortgage to pay as well.