Refinancing Your Home Loan When You Have Bad Credit

Rates and Fees verified correct on March 4th, 2015

If you have a bad credit history you may feel as though you stand out like a black sheep when it comes to finding a home loan.

Home Loan Tip

A bad credit report doesn’t always mean you’ll be shunned by lenders. If you are considering a switch to help you manage debt, or to switch to a home loan that better suits your needs, here are the steps to help you with the process.

Speak to a home loan expert about a home loan if you're credit impaired

Pepper is a specialist lender who can give you a hand if you're in need of a home loan and fall outside of regular lending guidelines, including if you've been in mortgage arrears greater than six months ago, and if you've been discharged from bankruptcy for at least one day. Fill out a form below and you can begin a discussion with Pepper about what refinancing options they might be able to offer you.

Enter in your details to speak to a lending specialist from Pepper about a home loan
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Pepper Home Loans

Pepper is an Australian non-bank lender which specialises in flexible home loan solutions for many borrowers, including the self-employed and those who fall outside the credit criteria of traditional lenders.

They cater to a wide range of home loan needs including refinancing for cash out or to consolidate debt to purchasing with a less than perfect credit history.

Pepper knows every person has unique circumstances and therefore they individually assess each application.

Fill out the basic details required in this form and you’ll be put into contact with a lending specialist from Pepper within one business day to discuss your options.

How to refinance if you have bad credit

Refinancing with bad credit is a more complicated process than a standard refinance. Here are some tips to get you started:

bad credit
    • Get a copy of your credit report. Knowing what you look like to lenders is the first step in tackling a bad credit history and you can do this by obtaining a copy of your credit report with Veda. This will give you an idea of the things a lender will look at when considering you as a customer. You can see your current credit limits, number of credit cards and any late payments which have been reported from any bills or loans on which you have missed payment.
    • Take control of your credit cards and spending. Just as you would curb your spending in the lead up to applying for a new home loan, you shouldn’t go crazy on your credit cards if you are considering refinancing your home loan. Also don't make any new credit card applications because even a rejected application will show up on your credit report.
  • Always make home loan repayments and other bill payments on time. Even though you may have several default payments in your credit history, that is no reason to give up on being financially responsible in the future. Always be organised and in control of your bills so they are paid ahead of time to avoid the risk of late payments as days lost in processing the transaction. Also, consider the repayment history you have on your current loan and whether your loan has been in arrears or any late payments.
  • Consider speaking to a specialist lender. Specialist lenders such as Pepper evaluate borrowers not on the number of defaults and the amounts of each of these defaults, but how long ago you made these mistakes. Specialist lenders recognise that you may have become credit impaired due to life events, such as divorce, illness or loss of a job, and are willing to offer loans to help you own your home and pay off existing debts. You can fill out the form above to speak to an expert from Pepper about a home loan.
  • Be honest with your refinance lender. Whether you think you do, or know that you have bad credit, it is always important to be honest and upfront about your financial past. It may also be helpful to use a lender who doesn’t evaluate you immediately using a credit scoring system when assessing you for a home loan. You may want to see a lender that assesses you in person first. This way you can talk to your potential lender and explain to them why you may have bad credit and the steps you’ve taken to address it.
  • Show that you have enough equity or savings to borrow less than 80% LVR. This avoids the need for Lender’s Mortgage Insurance (LMI) for high documentation loans and means you’re a lower risk to to the lender.
  • Consider visiting a mortgage broker. A mortgage broker will let you know what loans you are eligible or ineligible for. They can also point you in the right direction and even help you throughout the process all the way to settlement.
  • Consider repairing your credit. There are a few places that specialise in repairing credit files for those who have bad credit. Although the fees are quite hefty, you may find that you end up saving more on your loan because you can get a lower interest rate.

About credit repair


How to successfully manage your home loan switch to avoid more bad credit

You need to also know how to manage the bad credit debt you already have, and how to avoid making the same mistakes and getting into the same situation in the future. To manage a bad credit refinance successfully:

    • If you are consolidating bad debt, keep your new loan separate. It is possible to refinance your home loan to consolidate bad debts such as credit cards or personal loans so they attract the same low interest rate as your home loan. However, to successfully manage this sort of bad credit refinance you should keep your refinance loan split so you make separate payments to your home loan and your consolidated debts.
  • Don't rely on refinancing as a regular way to get out of trouble. While you will be able to justify the entry and exit fees on refinancing a loan to consolidate debt or to move to a better home loan deal, these fees will add up if you continue to rely on refinancing as a way to manage your bad debt.
  • Don't choose features which will tempt you. If you know you have trouble with managing finances then features such as a line of credit, which allows you to withdraw up to the value of the equity in your home, may tempt you to spend more. Similarly, if the refinance loan you choose has free redraw you may tempted to withdraw the extra repayments.

There is no shame in asking for assistance if you have bad credit and need to refinance your home loan to better manage your finances. Just make sure your bad credit refinance will really work for you rather than tempt you to spend more.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans or savings accounts.

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6 Responses to Refinancing Your Home Loan When You Have Bad Credit

  1. Default Gravatar
    sarah | April 6, 2014

    Hi Team at finder.com. we would like to know if your able to help us out. we would like to refinance but have amounts on our credit file under $1000 each. if we can refinance we are prepared to pay these out in full. we find it funny that you have fox symes as a recommendation for bad credit home loans as i have previously spoken with them and they have said that they dont do bad credit finance and cant help us. thanks sarah and scott

    • Staff
      Marc | April 7, 2014

      Hi Sarah,
      thanks for the question.

      Unfortunately we don’t offer any home loans ourselves, but rather allow you only to compare different products available in the market. I’d recommend comparing the different bad credit home loans in the marketplace and then contacting any lenders who have products you’re interested in. You might also want to consider credit repair services.

      I hope this helps,

  2. Default Gravatar
    gumba | January 25, 2014

    i got the pre approvel from a bank and then got declined because we fell behind on our home loan by 2 months christmas period , i will have the money to bring it up to date in next week,we have $150k equity in our home (valued at $250k) and would like to consolidate our credit card,cars and bike loan in total $90k..im lost to wich bank we should go to and to who would accept us

    • Staff
      Marc | January 28, 2014

      Hi Gumba,
      thanks for the question.

      Unfortunately I’m not able to suggest specific lenders who you should apply with. I’d recommend contacting different lenders to find out about their debt consolidation loans and if you’re eligible to apply.

      I hope this helps,

  3. Default Gravatar
    paul | January 6, 2014

    We have sold our house and are buying another house the buying price is $327,500 applying for a loan of $85,000 have been knocked back from a default on a gas and electricity bill we were not aware of from 2010 it is paid can someone please advise best solution I have a broker how isn’t returning calls or replying to messages sent am today appreciate any assistance regards Paul

    • Staff
      Marc | January 7, 2014

      Hello Paul,
      thanks for the question.

      I’m unable to give personal advice, but generally speaking there are some lenders who do grant loans to those with defaults on their credit file. It may be a good idea to carry out a search of these lenders, and compare them using their fees and interest rates. It may also be a good idea to seek the services of a different mortgage broker. You can compare bad credit lenders here.

      I hope that helps,

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