Refinancing Guide Chapter 5: Refinancing in tricky situations

How to refinance when you're in debt or have bad credit history

< Read the previous guide in our refinancing guide series: The 7 steps to refinancing your home loan
So far we’ve covered the end-to-end process of refinancing, and for most people it’s fairly straightforward. But what if your situation is a bit outside the norm?

Refinancing in certain circumstances can be a bit tricky. Fortunately, no matter what your situation, there are likely to be lenders out there willing to give you a chance. Here are some common tricky refinancing situations.

Don't give up just because a financial problem is making it hard for you to refinance.

Refinancing with bad credit

If you’ve had some bad marks on your credit file since taking out your home loan, it can seriously narrow your options when you look to refinance.

Fortunately, there are lenders that specialise in situations just like yours.

Specialist lenders can help credit-impaired borrowers, even if you have defaults or judgments. Some specialist lenders will even allow discharged bankruptcies.

Now, the downside is that you’re likely to pay a higher rate than you would with a traditional lender. If you’re currently with a mainstream lender and you’ve racked up some bad credit marks, refinancing to a specialist lender is unlikely to lower your rate.

However, there may be times when it’s wise to take on the higher rate. For instance, if you need to extend your loan term to get back on top of your repayments, then refinancing to a specialist lender may be your best option.

There are a few things you’ll want to do when you’re refinancing with bad credit. First, you’ll want to get a copy of your credit file to assess how bad the damage is. The great news is that you can access your credit file for free. You can even do it without leaving finder.com.au. If you want a free copy of your credit file, head here.

Once you’ve got your credit file in hand, go through it and make sure it’s accurate. It’s possible it may have defaults and judgments recorded incorrectly, so if you think a listing has been made in error, make sure to contact the credit provider to get it sorted out. Alternatively, there are businesses that specialise in credit repair that can help you get incorrect listings removed in exchange for a fee.

The next thing you’ll want to do is get on top of your existing debt. If you’re having trouble making payments, contact your creditors to set up a payment plan. Most companies will be willing to work with you to negotiate payments you can manage.

Finally, you’ll want to speak to a specialist lender. You can find some specialist lenders in the table below.

Rates last updated February 21st, 2018
Details Features
ClickLoans
ClickLoans
ClickLoans is an online-only lender that offers home loans for both self-employed and PAYG borrowers who may have bad credit.
  • They can help with purchasing and refinancing
  • Can assist owner occupier and investment borrowers
  • Great features like 100% offset and unlimited extra repayments
Enquire Now More info

Specialist lenders will assess your case on an individual basis and work with you to find the best refinancing outcome for your circumstances.

Refinancing in arrears

If you’ve been struggling to meet your debt obligations, it’s highly likely you’ve had trouble paying your home loan as well.

If you’re falling behind on home loan repayments, the first and absolutely most crucial step you must take is to contact your current lender. Be honest with them about the difficulties you’re facing and see if they’ll be willing to negotiate a hardship plan to get you back on track. You may even be able to refinance with your current lender to get a longer loan term and reduce your repayments.

If this isn’t an option, however, you might want to look to other lenders for help. The same specialist lenders who help borrowers with bad credit are often also willing to help people whose home loan has fallen into arrears.

Once again, you may find yourself paying a higher interest rate. Also, if your loan term is extended it means you’ll be paying more in interest over the life of the loan. However, if the options are either paying more in interest or defaulting on your home loan, the choice is pretty clear.

Refinancing in negative equity

This is probably the most difficult refinancing situation to find yourself in. Negative equity means that your home has fallen in value, and you now owe more than it’s worth.

This is a rare situation in Australia, where house price growth has been robust, but it’s not unheard of. If you took out a home loan with a high loan-to-value ratio (LVR) and you’re in an area where house prices have fallen, you could find yourself facing negative equity.

Unfortunately, you’re highly unlikely to find a lender willing to refinance your home loan. This is because lenders require at least some measure of equity to serve as a deposit on a home loan. So this means your options are limited to negotiating with your current lender.

Fortunately, you can get yourself out of negative equity and back into the refinancing market by making just a few changes to your financial habits.

First, you’ll need to start making extra repayments on your home loan. This can be a big ask if you’re already struggling. An easy way to get ahead is to switch to fortnightly repayments. This won’t have you significantly out-of-pocket, but will add up to an extra monthly repayment every year.

Confused? Here’s how it works. When you make your monthly repayments, you’re paying 12 instalments a year. Now, let’s say your monthly repayment is $2,300. That means over the course of a year, you make repayments equalling $27,600.

If you switch to fortnightly repayments, your monthly repayment will be halved to $1,150. You’ll pay 26 instalments. Over the course of the year, this adds up to $29,900, or an extra month of repayments.

Using this strategy won’t hurt your hip pocket too much, but it will help you to get out of negative equity more quickly.

Once you’re back in positive territory, your refinancing options will open up and you can begin hunting for a better deal. For now, unfortunately, you’ll have to put off refinancing.

Summing up

Even if your situation is a bit outside the mainstream, you may still have refinancing options. There are lenders out there who specialise in situations just like yours. But, even if you can’t find another lender willing to help, you can always negotiate with your current lender to get yourself back on track.

Check out the other parts in this guide

Or you can find a better home loan right now

Rates last updated February 20th, 2018
$
% p.a.
Offset account
Split 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 Maximum Insured LVR Amount Saved Short Description
3.52%
3.54%
$0
$0 p.a.
80%
A basic home loan with a competitive rate and low fees.
3.52%
3.53%
$0
$0 p.a.
80%
A competitive variable rate product with no application or valuation fees offered by a 100% online lender.
3.59%
3.60%
$0
$0 p.a.
90%
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.
3.54%
3.58%
$0
$0 p.a.
80%
A variable rate home loan with competitive rate, redraw facility and offset account.
3.69%
3.69%
$0
$0 p.a.
90%
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.58%
3.58%
$0
$0 p.a.
70%
A low interest rate home loan with no application or ongoing fees.
3.49%
4.49%
$0
$375 p.a.
90%
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application fee or ongoing fees with this loan.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.64%
3.67%
$0
$0 p.a.
80%
A low rate home loan with no ongoing fees.
3.77%
3.81%
$200
$0 p.a.
95%
A basic home loan with a low interest rate and a redraw facility available.
3.65%
3.66%
$0
$0 p.a.
90%
A competitive variable rate home loan with no application fee.
3.74%
3.74%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans
require no LMI and no deposit. NSW, Qld and ACT only.
3.60%
3.62%
$0
$0 p.a.
80%
Take advantage of a 100% offset account along with no annual or application fees.
3.62%
3.62%
$0
$0 p.a.
80%
A discounted, competitive variable rate loan with limited fees.
3.73%
3.73%
$0
$0 p.a.
80%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.74%
3.75%
$0
$0 p.a.
80%
A special variable rate home loan with no application or ongoing fees.
3.64%
4.03%
$0
$395 p.a.
80%
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.64%
3.64%
$0
$0 p.a.
70%
A low-rate basic home loan requiring a 30% deposit.
3.94%
3.71%
$0
$0 p.a.
80%
Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
3.78%
3.78%
$0
$0 p.a.
80%
A basic low-rate home loan that still offers some useful features.
3.89%
3.91%
$0
$0 p.a.
80%
Package your owner-occupied loan with your investment loan and enjoy low rates for both.
3.69%
4.47%
$0
$375 p.a.
90%
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.99%
4.41%
$0
$395 p.a.
90%
A discounted home loan variable rate that comes with a competitive package, an eligible credit card and an offset transaction account.
3.65%
4.84%
$0
$395 p.a.
90%
A 2 years fixed platinum package that has $0 application and a loan redraw facility.
4.19%
3.78%
$0
$0 p.a.
80%
Tic:Toc's fixed rate owner occupier loan has a competitive rate, limited fees and a fast, easy online application process.
3.97%
4.02%
$445
$0 p.a.
90%
Get a competitive rate without features you may not use.
4.09%
4.11%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
3.96%
3.98%
$350
$0 p.a.
90%
Take advantage of a redraw facility, competitive variable rate and no application or settlement fees for a limited time.
3.97%
3.97%
$0
$0 p.a.
90%
A competitive variable rate home loan with no ongoing fees.
3.99%
3.99%
$395
$0 p.a.
80%
A flexible low-rate variable home loan that lets you combine your loan with other financial products.
3.74%
4.15%
$0
$395 p.a.
80%
Enjoy a discount of a competitive interest rate and 100% offset account.
4.19%
4.19%
$0
$0 p.a.
90%
100% offset account, unrestricted additional repayments and no monthly account keeping fees
3.89%
4.87%
$0
$0 p.a.
90%
Enjoy a low interest rate and borrow up to 90% (with LMI) of your property's value.
3.99%
4.77%
$0
$0 p.a.
80%
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
3.94%
3.97%
$0
$0 p.a.
80%
Access the equity in your home with a competitive interest-only rate and no application fee.
3.69%
4.00%
$0
$350 p.a.
95%
Fix your rate for 3 years and borrow up to 95% LVR.
3.84%
4.83%
$0
$0 p.a.
80%
Get a competitive 2-year fixed rate with no application or ongoing fees.
$0
$0 p.a.
A basic low-rate home loan that still offers some useful features.
3.68%
3.69%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
3.69%
3.71%
$0
$0 p.a.
90%
A great interest rate home loan offer with unlimited redraw and unlimited extra payments.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with flexible features. You can earn 30,000 Velocity Points for every $100k you borrow (for a limited time, subject to eligibility requirements).
3.69%
3.69%
$0
$398 p.a.
70%
Enjoy a low variable rate with no application and ongoing fees.
3.99%
4.03%
$0
$0 p.a.
95%
Enjoy a basic home loan with a high LVR and no application or ongoing fees.
3.59%
4.42%
$600
$0 p.a.
95%
This competitive introductory rate is a limited time offer for new owner-occupiers
3.68%
3.69%
$0
$0 p.a.
90%
Get a low variable rate along with some important basic features.
3.79%
3.79%
$0
$0 p.a.
80%
Minimum loan amount for this basic home loan is $750000.
4.09%
4.11%
$0
$0 p.a.
80%
A low variable rate loan with no application or ongoing fees.
4.39%
5.42%
$300
$10 monthly ($120 p.a.)
95%
Lock in a fixed interest rate term for repayment certainty.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.88%
4.88%
$0
$395 p.a.
95%
Refinance from your existing loan and get a $1,250 rebate. Lock in a discounted fixed rate with a low service fee.

Compare up to 4 providers

Home Loan Offers

Important Information*
loans.com.au Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 3.52%p.a.
comp rate of 3.54%p.a.

Tic:Toc Live in Loan Variable Rate - Principal & Interest

A competitive variable rate product with no application or valuation fees offered by a 100% online lender.

NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I) First Home Buyer Special

A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, read the PDS or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Ask a question