Falling behind on mortgage repayments can make an already difficult financial situation more stressful. You may be wondering whether refinancing could reduce your repayments, help you catch up or provide a way to manage your existing home loan.
Refinancing with mortgage arrears may be possible in some circumstances, but missed repayments can make obtaining a new loan more difficult.
The most appropriate next step depends on why the arrears occurred, whether your circumstances have improved and whether the proposed new loan would be affordable.
Can You Refinance a Mortgage if You’re Behind on Payments?
Potentially, but lenders generally examine your recent mortgage repayment history when assessing a refinance application.
Missed repayments may indicate financial difficulty, and a prospective lender may require additional evidence that the proposed new loan is affordable.
Some lenders may have policies that restrict applications involving current or recent arrears.
Refinancing is not a guaranteed solution to mortgage repayment difficulties, and changing lenders does not automatically resolve the underlying affordability problem.
How Do Mortgage Arrears Affect a Refinance Application?
Mortgage arrears arise when required repayments have not been made by their due dates.
When assessing a refinance, lenders may review your repayment history, current outstanding balance, income, expenses, existing liabilities and credit information.
They may also consider whether the arrears were temporary, whether they have been resolved and whether the circumstances that caused them are likely to continue.
What Do Lenders Look at When You Have Missed Repayments?
Recent Repayment History
How recently repayments were missed and whether the account is currently up to date may influence the assessment.
Current Income
Lenders need to understand whether your present income can support the proposed mortgage repayments.
Existing Debts
Credit cards, personal loans and other liabilities may affect affordability.
Property Equity
Equity may be relevant to the security position, but it does not replace the need to demonstrate affordability.
What if Your Arrears Were Caused by a Temporary Problem?
Some borrowers experience repayment difficulties following a temporary reduction in working hours, illness, unexpected expenses or changes in household income.
If the circumstances have improved, a lender may consider evidence of your current financial position and repayment capacity.
However, an explanation for past arrears does not guarantee approval. The lender still needs to apply its own credit and serviceability requirements.
Should You Refinance to Lower Your Mortgage Repayments?
A lower interest rate or longer loan term may reduce scheduled repayments in some circumstances.
However, extending a loan term can increase the total interest paid over time, even where the monthly repayment is lower.
Refinancing may also involve fees, discharge costs, a new valuation and other expenses.
Before considering a new loan, it is important to assess whether the arrangement would genuinely improve your financial position.
What Can You Do Before Applying to Refinance?
- Contact your existing lender. Explain the difficulty and ask about available hardship arrangements.
- Review your household budget. Understand what repayments you can realistically afford.
- Check your credit information. Make sure you understand what lenders may see.
- Gather evidence of your current income. Updated financial information may be important.
- Seek independent support where needed. A financial counsellor can help you assess your options.
- Consider a refinance assessment only where appropriate. A broker can explain potential lender requirements and costs.
Can You Refinance if You Have Equity but Missed Repayments?
Having equity in your home may provide security for a loan, but it does not guarantee a refinance will be approved.
Lenders generally need to assess your ability to make future repayments, not simply the value of the property.
A borrower with substantial equity may still be unable to refinance if the proposed loan does not meet affordability or credit requirements.
What if Refinancing Isn’t Available?
If refinancing is not suitable or available, options to discuss with your existing lender may include a hardship arrangement or other changes permitted under the loan agreement.
If you’re experiencing ongoing financial difficulty, independent financial counselling can help you consider the broader options and consequences.
It is important to seek help early rather than assuming missed repayments will resolve themselves.
Want to Understand Whether Refinancing Is an Option?
Stellar Finance Group can review your current lending position and discuss whether a refinance assessment may be appropriate for your circumstances.
If you’re currently in financial hardship, contact your existing lender’s hardship team promptly rather than waiting for a new loan application.
Frequently Asked Questions
Can I refinance with one missed mortgage payment?
Potentially. The outcome depends on the lender’s policy, the circumstances, your repayment history and overall financial position.
Will mortgage arrears affect my credit report?
Missed repayments may be reflected in repayment history information or other credit reporting records, depending on the circumstances and applicable rules.
Can refinancing remove missed payments from my credit history?
No. Refinancing does not automatically remove accurate historical credit information.
Does having home equity guarantee refinancing approval?
No. The lender must also assess your income, expenses, liabilities and other eligibility requirements.
What should I do if I cannot make my next mortgage payment?
Contact your lender’s hardship team as early as possible and consider speaking with a free financial counsellor.
Review Your Refinancing Options
Understanding why repayments were missed and whether your current financial position can support a new mortgage is essential before applying.
Learn more about refinancing your home loan or book a meeting with Stellar Finance Group.
