Can I refinance my home loan with bad credit?

Emma Duffy By on July 4, 2019
home loan

Photo by Trent Szmolnik on Unsplash

Having bad credit doesn’t necessarily mean you will be denied by lenders from refinancing your home loan. 

A bad credit report definitely isn’t the most ideal thing to have when you’re trying to refinance your home, but there are some steps you can take to improve your chances.

Low rate refinance home loans

Provider Ad rate
Comp rate*
Purchase or Refi, P&I 80% Smart Home Loan 2.88% 2.90% $1,660 More details
Discount Variable 80% 3.07% 3.09% $1,702 More details
Base Variable Rate Special P&I 3.20% 3.20% $1,730 More details
Ad rate
Comp rate*
Purchase or Refi, P&I 80% Smart Home Loan
2.88% 2.90% $1,660
More details
Discount Variable 80%
3.07% 3.09% $1,702
More details
Base Variable Rate Special P&I
3.20% 3.20% $1,730
More details

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 1 November 2019. View disclaimer.

If you’re thinking of refinancing your home loan with bad credit, here are some steps to follow.

How to refinance with bad credit

Refinancing your home loan when you have bad credit can be hard, but not impossible. Here are some tips to help you get started.

1. See if you can refinance with your current lender first 

Refinancing your home loan to another lender is one option, but before you call it quits with your current lender it may be worth speaking with them first to see what options they might be able to offer you. 

2. Request a copy of your credit file

Accessing your credit file will give you a clearer picture of how you look from the perspective of the lender. It’s always a good idea to be familiar with your credit history before applying for any type of loan as you can be sure all prospective loan lenders will take a look at it before giving you the okay for a loan.

Looking over your credit file will give you a good idea of the things a lender will look at when assessing your loan application. You can see things like your current credit card limits, the number of credit cards you have, any late payments, etc. 

You can get one free copy of your credit report every year from any of the four credit reporting agencies in Australia (Equifax, Experian, CheckYourCredit, TasmanianCollectionService). 

3. Wrangle your debt

To improve your chances of refinancing your home loan, the next step is to get on top of your existing debt. Minimise your credit card usage, and be diligent about meeting credit card repayments. If you’re having trouble meeting these (or any other) payments on time, you can contact your provider and negotiate a new payment plan. 

Having evidence of a regular savings fund may also give you a little boost when the time comes to refinance because it shows that you’re doing whatever you can to be financially responsible.

4. See a mortgage broker

Visiting a licensed mortgage broker could help because they may be able to point you in the direction of a lender who is more likely to take a look at your application (given your bad credit status). Mortgage brokers know exactly what the borrowing process entails, so they can be there to hold your hand through the application process, and discuss your unique borrowing needs in detail.

5. Consider a specialist lender

There are certain lenders in Australia who specialise in bad credit home loans. Specialist lenders will look over your credit history and may recognise that bad credit can sometimes be a result of circumstances outside of your control, like sickness or divorce. Specialist lenders will also take your income and other factors into account, and they may be willing to offer you a loan. 

6. Borrow at an LVR of under 80%  

Borrowing less than 80% of the property’s value may help you avoid paying Lender’s Mortgage Insurance (LMI), because the lender may consider you a lower risk.

It’s best to try and show the lender you have enough savings or equity to maintain an LVR below 80%. 

Tips to manage a bad credit refinance

1. Don’t apply with too many lenders 

You should avoid applying with too many lenders, as each application goes on your credit history. While it won’t necessarily stop you from getting a loan, it doesn’t look good to have multiple loan applications in a short period of time – particularly as you’re already on the back foot with a bad credit history. 

If lender after lender is declining your application, it may further impact your credit report.

2. See how much you could really save by refinancing

Many borrowers refinance their home loans to improve their financial situation, whether that’s by lowering their interest rate, accessing equity, or changing the loan term. But before you refinance, do your research and make sure refinancing your home loan is the most ideal option for your financial situation.

If you’re looking to refinance to a home loan with a lower interest rate, refinancing may end up costing you more than you expect. While your interest rate may be lower, you could be stung with other ongoing fees and/or charges to switch your home loan (particularly if you’re on a fixed rate home loan and need to pay break costs to leave it). 

3. Keep debt consolidation loans separate

It is possible to refinance your home loan to consolidate bad debts (such as credit cards) so they attract the same low interest rate as your home loan. But you may want to consider consolidating your bad debts into a separate personal loan so you can make different repayments for your home loan and your consolidated debts. Otherwise, you’re essentially just stretching out all your short-term debts over a much longer term, which may drive your total interest costs higher. 

4. Don’t choose features that will tempt you to overspend

If you already have troubles managing your finances, features like a line of credit (which allows you to withdraw up to the value of equity in your home) may tempt you to spend more money. If the loan you want to refinance to has a free redraw facility, you could be tempted to withdraw the extra repayments.’s two cents

There’s nothing wrong with asking for assistance if you’ve got bad credit and need to refinance your home loan to better manage your finances. These days, there are loan options out there for those who have bad credit, though they can come with higher interest rates as a result. 

Falling behind on your mortgage payments isn’t ideal, but there are things you can do to get back on track. Refinancing your home loan is one option, but you may want to speak with your lender to see what other options they can offer you.


The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in 2018. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2019) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

In the interests of full disclosure, and are part of the Firstmac Group. To read about how manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure. The interest rate per annum is based on a loan credit of $150,000 and a loan term of 25 years.

Emma Duffy
Emma Duffy joined as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand.
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