Introduction
If you fixed your home loan at a low rate in 2020 or 2021, you may now be looking at a very different mortgage. Your fixed period may have ended, your income may have grown and your property may be worth more. Yet when you ask a new lender to refinance, the answer can still be no.
That’s the serviceability trap: qualifying for a new loan can be harder than continuing to repay the loan you already have. The issue isn’t always your actual ability to make today’s repayments. It’s whether a lender’s assessment says you could manage repayments under its approval rules.
So, is refinancing worth it in 2026? Often, it’s worth investigating. But switching lenders is not automatically the right move – especially if the loan you have is difficult to replace.
What’s changed in the 2026 rate environment?
As at 31 October 2026, the Reserve Bank of Australia’s cash rate target is 4.60%, following a 0.25 percentage point increase on 29 September. The next scheduled RBA announcement is 3 November. The cash rate is not the same as your home loan rate: lenders set their own rates according to the product and borrower.
The RBA’s cash rate information provides useful context, but your refinance decision should be based on the actual loan offers available to you, along with fees, features and your personal circumstances.
For many borrowers coming off a fixed rate, the payment change can feel sharp. At the same time, a new lender will assess whether your income can support the proposed loan under its serviceability rules. That’s where a higher salary may not translate into the borrowing capacity you expected.
Why can borrowing power fall even when your income rises?
Banks and other authorised deposit-taking institutions generally assess whether you could afford repayments at the proposed interest rate plus a serviceability buffer of at least three percentage points. APRA confirmed the buffer remains in place in its 2026 policy update.
For example, if a lender’s proposed rate were 6%, it would generally assess repayments at 9%. That’s an illustration, not a quote or an estimate of your rate. The higher assessment rate is intended to test whether a borrower could withstand financial pressure; it can also reduce the loan amount a lender considers affordable.
The lender may also look closely at your living expenses, dependants, credit card limits, other loans and how it recognises different types of income. For medical and legal professionals, income can include a mix of salary, overtime, allowances, practice income, bonuses or distributions. Lenders may treat these sources differently.
You may be earning more than you did when you fixed your loan. But if your expenses, debt commitments or the assessment rate have also risen, the lender’s calculation may still show less capacity.
The APRA serviceability guidance allows lenders to consider limited exceptions to their standard policies, including evidence such as a borrower’s repayment history. These are lender decisions, not a guaranteed exemption from assessment. A like-for-like refinance may be considered differently from a request to borrow extra, but approval still depends on the lender’s policy and review of your circumstances.
When does refinancing make sense – and when might staying put be smarter?
A refinance may be worth exploring if it could:
- Reduce your interest rate or repayments enough to justify switching costs.
- Give you loan features that better suit your plans, such as an offset account or repayment flexibility.
- Help you restructure investment lending or separate loan purposes.
- Give you a clearer path to manage your repayments after a fixed period ends.
But a lower monthly repayment doesn’t always mean a better deal. If you extend the loan term, you may pay more interest over time. Consider discharge and application fees, valuation costs, any break costs on a fixed loan, and whether you would lose useful features or discounts.
Staying with your current lender may be the more practical choice if a new lender’s assessment would limit your options, the total refinance costs outweigh the likely benefit, or you have a favourable existing rate or features you value. Ask your current lender what options it can offer, and compare those with an external refinance. A product or rate change with your existing lender may be simpler in some cases, but changes to the loan amount or structure can still require assessment.
The decision is not simply “refinance or don’t”. It’s whether a change improves your position without creating a new problem.
How much equity do you need?
Equity is the difference between your property’s value and the debt secured against it. A lender will usually consider the loan-to-value ratio (LVR) – the loan amount compared with the property’s assessed value – alongside serviceability.
As a simplified example, if a lender valued a property at $2 million and the current loan were $1.4 million, an 80% LVR would equate to a loan of $1.6 million. That suggests $200,000 of headroom before costs, but it does not mean the lender will approve that amount. The valuation may differ, fees may apply and your income and expenses still need to support the loan.
Inner West homes can include everything from apartments to older terraces and renovated houses. Property type, condition and the lender’s valuation can all affect the available equity. If you’re reviewing a home in Balmain, Newtown, Marrickville or Stanmore, don’t assume an online estimate is the same as a lender’s valuation.
What about cash-out or debt consolidation?
Taking cash out as part of a refinance increases the amount you’re asking the lender to approve. That extra borrowing may make it harder to pass the serviceability assessment, even if you have substantial equity.
Be clear about the purpose of the funds. You might be considering renovations, an investment, education costs or another major expense. A lender may ask for supporting information, and the purpose can affect how the application is assessed. If the plan involves an investment property, review the full structure and seek tax advice from a qualified professional.
Debt consolidation can simplify repayments, but it needs careful thought. Moving credit card or personal loan balances into a mortgage may reduce the required monthly payment, yet those debts could then be repaid over a much longer period. The home is also security for the consolidated amount. Use a loan comparison calculator to compare the total interest and repayment period – not just the first month’s repayment.
How can a broker help you navigate the serviceability trap?
A good refinance review starts with the whole picture: your current loan, verified income, household expenses, other debts, property value and the reason for refinancing. From there, a broker can compare lender policies and help present your situation clearly.
Depending on your circumstances, that may involve:
- Checking how different lenders assess your professional, business or investment income.
- Reviewing credit card limits and existing commitments, and confirming what can be reduced or closed.
- Exploring whether a like-for-like refinance may fit a lender’s policy, supported by a strong repayment history.
- Separating any cash-out request from the refinance where appropriate, rather than assuming all borrowing should be combined.
- Comparing your current lender’s options with those from other lenders, including the costs and features of each.
This is not about trying to “get around” responsible lending requirements. It’s about matching your application to a lender whose criteria fit your circumstances, and being realistic about what a refinance can achieve. If part of your income is self-employed or comes from running a practice, it’s also worth reviewing our low doc loans options, since lenders differ in how they assess alternative income documentation.
You can start with our borrowing power calculator, but treat the result as an initial guide, not approval. If you’re also planning a purchase, our home loan options and buy a home service can help you consider the next step alongside your current mortgage.
So, is refinancing worth it in 2026?
It can be. But the answer depends on more than the advertised rate. Weigh the potential savings and loan features against switching costs, the assessment you’ll need to pass, your equity and your longer-term plans.
If you’re worried that the serviceability test could block a refinance, don’t assume your only options are to accept your current loan indefinitely or apply everywhere. A careful review can help clarify whether switching, negotiating with your existing lender or waiting until your position changes makes most sense. For the other side of the decision, our guide to refinance mistakes and the 'loyalty tax' covers the costs and timing traps to avoid.
At Stellar Finance Group, we help borrowers make the complex simple and manage the process from assessment through to settlement. To talk through your options, book a chat with our team.
General information only, not personal financial advice or a loan approval. Lending criteria, rates, fees and eligibility vary by lender and borrower. All applications are subject to assessment and approval. Consider your circumstances and seek qualified legal, tax or financial advice where appropriate.
