5 Options For Refinancing With Bad Credit

A strong credit score isn’t always easy to maintain. A single missed repayment can significantly reduce your score. Sometimes it’s caused by a temporary income setback. Other times, prolonged financial hardship, defaults or bankruptcy may still be affecting your credit file.

While refinancing a mortgage with bad credit can be more complex, it can also be one of the smartest financial moves you make.

Refinancing may help you:

• Lower your monthly repayments
• Get a longer repayment period
• Help you pay off all your debts sooner
• Access more features and flexible policies

Five Ways To Refinance With Bad Credit

1. Restructure With Your Current Lender

Your current lender may be willing to work with you on refinancing, even if your credit score has taken a hit. If convinced, they can offer a lower interest rate or more flexible repayment terms to help you avoid late repayments, to reduce the chances of default, or simply to keep you from refinancing with a competitor.

Restructuring your loan with your current lender saves you time and money because you don’t have to go through a prolonged refinancing process with another lender. So, if you are considering refinancing, your first step should be checking in with your current lender.

2. Refinance With A Specialist Lender

There are specialist lenders that focus on refinancing people with bad credit. Their guidelines are often more flexible than traditional banks, making approval easier. You will still have to meet their minimum requirements and usually pay a higher interest rate.

Refinancing with a specialist lender for the short term could be a good strategy if you have severe problems with your credit file, such as paid defaults, that will remain in place for some years. Then, when you are eligible for standard loan packages, you can refinance with a major lender and get a cheaper interest rate and better deal. This is the best option if you are refinancing for a cash out, flexible policies or debt consolidation.

Becoming Eligible To Refinance With A Major Bank

You are eligible to refinance out of a non-conforming loan once you meet standard bank requirements. This generally means that:

• You owe 80% or less of your property’s value (some banks consider up to 90% as well).
• All your defaults are paid and no longer showing on your credit file.
• You have full income evidence (some banks also consider low-doc loans).
• You have made all of your repayments on time in the last six months.

We can help you find a specialist lender and refinance with a major bank once you are eligible.

Call us on 1300 889 743 or enquire online, and we will let you know your options.

3. Consolidate All Your Debts Into The Mortgage

Adding all your debts to your mortgage refinancing loan is an excellent way of getting rid of debt quickly and efficiently. By consolidating all your debts into your mortgage, you can get a lower interest rate on the entire amount refinanced. This is because the interest rates on mortgages are generally lower than for other kinds of debt, such as personal loans, car loans, and credit cards. In this way, debt consolidation through mortgage lowers your expenses, increasing the serviceability of your refinance loan.

4. Apply With A Co-Borrower

If you’re refinancing with credit problems, one way to improve your chances of getting approval is to apply with a co-borrower who has a good credit score. A co-borrower is someone who applies for the loan with you and agrees to be held liable for repaying the refinanced mortgage if you default.

When you apply with a non-occupying co-borrower, both your credit scores and assets are considered. Applying with a co-borrower can help increase your chances and get you a lower interest rate than if you applied alone.

5. Private Lending (Last Resort Only)

Private lenders are mortgage fund holders or high-net-worth individuals who offer high-rate unregulated loans secured by either a second mortgage or a caveat – which typically prevents you from getting a home loan without the consent of the caveat holder. Since the annual interest rates from private lenders usually range from 2 to 6% per month but can go higher, so, they should be your last resort. Getting a mortgage from them for the shortest term possible and then switching to a bank once you meet the requirements should be the goal.

Many banks will not accept a refinance application if the loan purpose is to refinance a private mortgage. However, if you have made your repayments on your mortgage with the private lender on time, we at Home Loan Experts can assist you with refinancing.

Which Option Is Right For You?

The right lending solution depends on your current financial position and credit history. Here’s a general guide to help you understand where you may fit:

Minor Late Repayments

If you’ve had a few late payments but otherwise maintain a strong repayment history, your current lender is often the best place to start.

Paid Defaults

If you have paid defaults (or other serious credit issues), you may need to explore options with a specialist lender, particularly if your credit history is limiting access to standard bank policies.

Active or Recently Discharged Part IX

Borrowers with an active or recently discharged Part IX arrangement typically have access to a limited lender panel and require specialist assessment.

Multiple High-Interest Debts

If you’re carrying multiple high-interest debts that are affecting your borrowing capacity, consolidating debts into your mortgage may reduce overall repayments and improve serviceability.

Urgent Short-Term Funding After Bank Declines

If you’ve been declined by a bank and require urgent short-term funding, private lending may be an option, but only with a clearly defined and realistic exit strategy.

Get Expert Help With Your Refinance

At Home Loan Experts, we work with 50+ lenders, including specialist lenders for bad credit scenarios. We know which lenders to approach, how to present your case, and how to negotiate for the right outcome. We handle the paperwork, manage the process, and continue supporting you even after settlement.

Before you apply, get clarity.

Call 1300 889 743 or complete our free online assessment form to speak with an expert mortgage broker about your options.