“Being behind on payments does not automatically close the door to refinancing. But it does significantly narrow your options and changes what you need to demonstrate.” [cite: 355]
Refinancing while behind on your current loan is possible, but it is among the more difficult scenarios lenders assess. [cite: 356] Major banks will generally decline an application from someone with a current arrears position. [cite: 357] Some non-bank lenders may consider it, depending on the reason for the arrears, the LVR, and the borrower’s overall credit profile. [cite: 358]
How lenders view arrears
Lenders look at the cause, duration, and resolution of the payment shortfall. [cite: 360] Arrears caused by a one-off event such as a medical episode or a period of unemployment that has since been resolved are treated differently from an ongoing inability to service the loan. [cite: 361] If the arrears are recent and unresolved, most lenders will not approve refinancing. [cite: 362]
What improves the outcome
- Clearing the arrears before applying is the most straightforward path. [cite: 364]
- Even one to three months of clean repayment history after resolving the arrears improves the picture significantly. [cite: 365]
- Equity matters here too: a borrower with a 40% LVR and temporary arrears is in a very different position to a borrower at 85% LVR with the same payment history. [cite: 366]
Hardship arrangements
Before pursuing refinancing, it is worth contacting your current lender about formal hardship assistance. [cite: 368] Australian lenders are required under the National Consumer Credit Protection Act to consider genuine hardship applications. [cite: 369] A hardship variation, which is a temporary reduction in repayments, may provide relief without the cost and complexity of refinancing. [cite: 370]
You may consider seeking independent advice from a licensed mortgage broker or financial professional to assess your personal circumstances. [cite: 371] This information is general in nature and does not take into account your objectives, financial situation or needs. [cite: 372] Lender policies for borrowers with payment arrears vary significantly. Speak with a licensed mortgage broker and consider contacting your current lender’s hardship team before making any decision. [cite: 373] All loans are subject to lender approval. [cite: 374]
Sources: ASIC MoneySmart, Trouble Paying Your Mortgage 2025; National Consumer Credit Protection Act 2009 (Hardship Provisions); [cite: 375] MFAA Industry Intelligence Report 2025. [cite: 376]
