Writing every debt on one sheet of paper, then staring at the last line
Three credit cards, one personal loan, and two things bought on instalments.
Each at a different rate, each due on a different day, and together taking more of the income than it felt like.
Then somebody says: consolidate it against the house, the rate is far lower.
That sentence is true. Interest on borrowing secured by a home is plainly lower than on credit cards and personal loans.
But it is not the whole sentence.
Because what happens at the same time is a far longer term, and debt that was never secured becoming debt with your house behind it.
Why the rate genuinely falls
Lenders price interest against the risk of not getting the money back.
Credit card and personal loan debt is unsecured, so if the borrower stops paying, the creditor has to sue and enforce with nothing tied up in advance.
Debt with a mortgaged house behind it is different, because there is an asset that can be seized and sold through a defined process.
Lower risk translates into a lower rate.
That is why consolidating into a home loan really does cut the rate, and is not a trick.
It is also exactly what tells you what you are trading away.
Four things that change on the day you consolidate
One, unsecured debt becomes debt secured on your home, the biggest change and the least discussed.
Before, failing to pay a credit card meant collection calls, a lawsuit and a damaged record.
After consolidating, failing to pay means the house.
Two, the term stretches enormously, from a personal loan over a few years to a debt running another ten or twenty.
Three, the monthly payment falls, which is what makes people decide, and what deserves the most caution.
A smaller payment does not mean smaller debt. It means the debt has been spread over more time.
Four, the total interest over the life of the loan may be higher, even at the lower rate.
That fourth is counterintuitive, so it needs spelling out.
How a lower rate can cost more in total
Interest actually paid depends on two things: the rate, and how long the principal stays outstanding.
Halve the rate but stretch the term fourfold, and the total goes up.
That is basic arithmetic rather than a trick by the bank.
So what has to be compared is not the monthly payment, but the total interest to the end of the loan.
Calculate it yourself like this.
Step one, the current plan. Multiply each debt's monthly payment by the instalments remaining, and add them all.
Subtract the total outstanding balance. That is the interest you would pay staying as you are.
Step two, the new plan. Multiply the new payment by the new number of instalments and subtract the amount consolidated.
Step three, compare the two figures, remembering to add arrangement fees, valuation and mortgage registration to the new side.
The result tells you immediately whether you are saving money or paying more to breathe each month.
Both answers have their uses. What matters is knowing which one you are choosing.
Five conditions that make consolidating genuinely worth it
The existing debt carries a very high rate, revolving credit card balances especially, which is the clearest case of all.
You intend to pay more than the minimum instalment, closing it faster than the contract requires, which is how you get the lower rate without actually stretching the term.
This is the heart of the whole subject. Somebody who consolidates and keeps paying what they used to pay does close sooner and does pay less interest.
Income is stable and predictable, because debt secured on a home is not something to gamble with.
Enough discipline not to borrow again, which is where this plan fails most often.
Closing the old facilities the moment consolidation completes, rather than keeping them for emergencies.
Because a facility left open is an invitation back, and plenty of people accept it.
Five situations where it becomes a trap
Consolidating to reduce the payment and spending the difference, which stretches the debt for nothing in return.
Consolidating and continuing to use the same cards, which within a year means two sets of debt instead of one.
This is the leading reason people end up worse off than before.
Unstable income, because the stake has changed from a credit record to somewhere to live.
Little value left in the house, because borrowing up to full value leaves no room for a future emergency.
Only a few years of the mortgage left, because consolidating stretches an almost finished loan out again.
Somebody fifteen years into a mortgage with five to go should think hardest about that one.
The forms available
Refinancing with additional borrowing, moving the mortgage to a new bank and taking extra to clear the other debts.
This usually gets the best rate, because the refinancing market is competitive.
Increasing the facility with the existing bank, faster and with less paperwork, but usually at a less attractive rate.
Borrowing against an unencumbered home, for somebody who has finished paying, which is a different arrangement with its own cautions.
Consolidation schemes from specialised financial institutions, whose terms change from period to period, so ask at the source rather than reading it in an article.
Whichever form, the same questions apply: total interest over the life, all the fees, and the terms for early settlement.
Questions to ask the bank before signing
- What is the rate for the first three years and after that? Promotional rates usually end at 36 months.
- What is the total interest over the whole term in baht? The bank can calculate that.
- What are all the fees? Valuation, mortgage registration and arrangement fees included.
- Is there a penalty for early settlement, and for how many years? Because the good plan is to consolidate then repay fast, not to run the full term.
- Is any insurance required? And is it a condition or an option?
The fourth matters most to anybody planning to overpay, because a penalty changes the whole plan.
What to do the same day consolidation completes
Close the card and revolving facilities that have just been cleared, and get written confirmation of closure.
Keep one card for genuine emergencies, and leave it somewhere you do not carry it.
Set up automatic payment for the new instalment, because missing a payment on a loan secured by your home is not a mistake to allow.
Aim to pay more than the instalment every month, using what you used to pay before consolidating as the target.
Check your credit report three months later to confirm the old debts really show as closed, which is done as in how to get and read your credit bureau report.
That last is forgotten constantly, and it is what catches people out on their next application.
Frequently asked questions
Does consolidating into a home loan really cut the interest?
Yes, because debt secured on a house is lower risk to a lender, so the rate is plainly below credit cards and personal loans.
Then why do some people say they paid more?
Because interest paid depends on both the rate and the time. Cutting the rate while multiplying the term can raise the total. Compare total interest rather than the monthly payment.
What is the real risk?
Turning unsecured debt into debt secured on your home. Before, missing payments cost you a credit record. After, missing payments risks the house.
Should I close all my credit cards?
Close nearly all the facilities that have just been cleared, keeping one for emergencies, because facilities left open are the leading reason people end up with two sets of debt.
How do I get the low rate without really stretching the term?
Consolidate, then keep paying what you were paying in total before rather than the lower new instalment. That closes it sooner and costs less interest, but check first whether early settlement carries a penalty.
Who should not consolidate against their home?
Anybody with unstable income, anybody who will keep using the same cards, and anybody with only a few years of mortgage left, because consolidating stretches an almost finished loan out again.
In short
- Consolidating into a home loan does cut the rate, because it is secured.
- What you trade is unsecured debt becoming debt with your house behind it.
- A smaller payment is the same debt spread over more time.
- A lower rate with a much longer term really can cost more in total.
- Compare total interest plus fees, not the monthly payment.
- The best version is consolidating then paying what you paid before, to finish early.
- Always ask about early settlement penalties before signing.
- Close the old facilities the same day rather than keeping them for emergencies.
- Check the credit report three months later to confirm the old debts closed.