Refinancing a home loan in arrears

Get a better deal on your home loan even if you're in arrears.

ArrearscalculatorIf you haven't been able to keep up with your mortgage repayment schedule and have an overdue debt, your account is in arrears. Most borrowers fall into this situation when they run into some financial challenges and are unable to meet their financial obligations. This can affect any loans that you may want to apply for in the future, as well as your credit history.

One of the ways to help fix this situation is to consider refinancing your loan. This will see you extend the term of your home loan to lower your repayments, or simply refinance to get a more competitive interest rate, lower fees and better features.

Can you refinance a home loan which is in arrears?

It's possible to refinance your home loan even if it is in arrears, but depending on your credit file it might not be an easy task. Your options can be to refinance it with your existing lender, or move to a different lender.

Refinancing your mortgage can help you control the situation, though you may not be able to get this service from major banks or well-known lenders. Instead, you will need to contact lenders who specialise in bad credit lending, or a mortgage broker who handles similar cases. Your options, if you're eligible, might also be limited as you will not qualify for the lower interest rate home loans that are available (because your interest rate is a reflection of your riskiness). Refinancing may also mean an extension of the length of your loan term, which means you’ll be paying it off for longer than expected, with more interest.

You might also be subject to certain conditions including higher interest rates, Lenders Mortgage Insurance (LMI, this is charged if you are borrowing more than 70-80% of the property’s purchase price), and risk fees. All these are the new lender’s insurance against the risk that they are taking by assuming your loan.

Tips on how to be approved for a bad credit home loans

Refinancing with bad credit

Borrowers with their mortgage in arrears are considered to have bad credit, but so are those that have financial problems in the past. These days there are more loan options for those with bad credit, even if the penalty of these loans is higher interest rates and fees.

The first and best step to getting a great refinancing deal is to consult a mortgage broker or specialist. They can assess your finances and give you advice on how to realistically manage it so can you can pay off your debts. It is also a good idea to have a budget for your spending, as well as coming up with a plan not just for your payment, but also on how you can spend less and set aside for a savings fund.

The best way to deal with bad credit is to minimise using your credit card and applying for other loans, and be diligent when it comes to paying off what you need to pay. A regular savings fund will give you a boost if you plan to refinance, as it shows you are being doing what you can to be financially responsible.

Being delayed on your mortgage payments is not the end of the world. There are things you can do to get back on track. Refinancing is one option, but before you do that, it might be a good option to talk to you current lender to see if they have options for you.

Speak to a lender about your refinancing options

Rates last updated May 27th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
5.59%
5.94%
$995
$15 monthly ($180 p.a.)
55%
Available for borrowers with bad credit history. Can be used for purchase or refinance even with negative listings on your credit file.
5.40%
5.59%
$0
$15 monthly ($180 p.a.)
95%
An online bad credit home loan for those who may have had some bad marks on their credit history.
5.29%
5.64%
$995
$15 monthly ($180 p.a.)
65%
Available for former bad credit borrowers who have had a clean credit file for the last 24 months. Available for purchase or refinance.

Compare up to 4 providers

What happens if your home loan continues to be in arrears?

The way lenders deal with mortgage in arrears vary, but the general process is pretty similar. Most lenders will send you a notice or a letter if you've missed a repayment twice in a row. You can respond by letting the lender know why you've fallen behind on your payments and when you can make your next due. If there's no response from you in any form, the lender will send you a default notice, which usually gives you up to 30 days to update your payments.

If you still fail to settle the payment, the lender will issue a statement saying that they will repossess your property. They will then apply for a writ or order for the repossession, and they will inform you of when this will happen. A 'Notice to Vacate' will be given to the borrower, and a sheriff will be sent to facilitate this, including changing the locks if necessary.

Any activity that deals with financial anomalies or difficulties will affect your credit rating, which then will affect any future loans that you may wish to apply for.

What should you consider before refinancing a home loan in arrears?

Refinancing to another lender is often the first option many take if they have a mortgage in arrears. Refinancing means getting a new loan to help you with your existing loan. Some people regularly refinance their homes, but some choose to do so when they’re having difficulties with their current one.

While this presents many opportunities for helping you get your finances back in order, it's a good idea to ask your current lender if they have other options for you. Most lenders have a ‘hardship team’ that is dedicated to helping borrowers who are having difficulty paying their dues by giving them better options with their payments. They can recalculate your loan and help you make plans for your payment so you won’t have to worry about defaulting or losing your property. This also applies to any loan that you have availed and are having difficulty keeping updated.

Marc Terrano

Marc Terrano is a content marketer manager at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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Home Loan Offers

Important Information*
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupied Variable P&I Rate — borrowing $700,000 or more

Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule. Refinance to a UBank loan and you could get $1,000 in your USaver account (offer conditions apply).

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)

New borrowers or refinancers from another lender get a discounted rate with this package loan.

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8 Responses

  1. Default Gravatar
    cassieJanuary 25, 2018

    house is going to be repossessed unless refinanced. can you help with that

    • Staff
      JonathanFebruary 21, 2018Staff

      Hi Cassie, thanks for your inquiry.

      Please note that we are finder.com.au a comparison service and not the actual provider. It would be best to speak to a provider who specialises in bad credit home loan refinancing. Please see this page for more information on bad credit home loans and a list of providers you can enquire with.

      Best,

      Jonathan

  2. Default Gravatar
    SallyMarch 22, 2017

    Can you refinance a loan when the existing bank is about to foreclose

    • Staff
      HaroldMarch 23, 2017Staff

      Hi Sally,

      Thank you for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage experts and don’t offer any of the products or services on our website.
      You can compare a range of loans through this page. Alternatively you can reach out to a mortgage broker who will take all your circumstances into account and offer you a range of lending options.

      I hope this has helped.

      Cheers,
      Harold

  3. Default Gravatar
    JennyApril 21, 2016

    How do i find a broker? My mortgage is in arrears due to a high interest rate of 7.30% and would like to try and refinance.

    • Staff
      MarcApril 22, 2016Staff

      Hi there Jenny,
      thanks for the question.

      You can compare lenders and brokers to contact for bad credit home loans in the table on this page.

      I hope this helps,
      Marc.

  4. Default Gravatar
    CharmaineApril 2, 2016

    Hi
    We have a home loan in arrears of $1800.00 and want to refinance at a cheaper interest rate as we are paying 8% for ten years.
    Are you able to assist us?
    Charmaine and Andrew

    • Staff
      BelindaApril 4, 2016Staff

      Hi Charmaine,

      Thanks for reaching out.

      finder.com.au is an online comparison service so please note that we don’t offer home loans ourselves, but we provide information that allows you to compare different home loans so you can make an informed decision.

      However, above on this page you can enquire with a lender that may be more likely to review your refinance application if your mortgage is in arrears.

      Alternatively, you can check out our refinancing comparison table on this page. If you enter in your current loan details and hit ‘calculate’, you’ll be able to see how much you could save by switching to each of the loans listed in the table.

      Your best course of action would be to speak to a mortgage broker to discuss your refinancing needs. A broker will be able to draw upon their panel of lenders to find one that’s more likely to review your application given that your mortgage is in arrears.

      All the best,
      Belinda

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