Beginner's Guide to Refinancing Eligibility

What Lenders Check When You Apply to Refinance

Lenders assess three things when you apply to refinance: your ability to repay the loan, the value of your property, and your credit history. If any of these have deteriorated since you first borrowed, you might not qualify even if you've been making every repayment on time.

Consider a borrower who took out a loan three years ago on a combined household income of $160,000. Since then, one partner has reduced their hours to part-time, dropping the combined income to $110,000. The loan repayments haven't changed, but the household's borrowing capacity has. When they apply to refinance to a lower rate, the new lender recalculates serviceability based on current income. Even though they've never missed a payment, the application gets declined because the loan amount no longer fits within the new lender's serviceability buffer at current income levels.

This happens more often than most borrowers expect. Refinancing isn't just about finding a lower rate. It's about requalifying for the loan amount you already owe, under today's lending criteria, with your current financial position.

How Serviceability Gets Calculated for a Refinance Application

Serviceability measures whether you can afford the loan repayments based on your current income, existing debts, and living expenses. Lenders apply a buffer rate, usually 3% above the actual loan rate, to stress-test whether you could still afford repayments if rates rose.

Your income is assessed using recent payslips, tax returns if you're self-employed, and any rental income from investment properties. Lenders discount rental income by around 20% to account for vacancy and maintenance costs. If you've changed jobs, moved to contract work, or started a business since you first borrowed, the way your income gets treated can shift significantly. Most lenders require at least six months in a new role, or two years of ABN history if you're self-employed.

Existing debts reduce your borrowing capacity. This includes credit card limits, not just the balances you carry. A credit card with a $20,000 limit might only have a $2,000 balance, but the lender assumes you could max it out tomorrow. Buy now, pay later accounts, personal loans, car leases, and any other ongoing commitments all count against you. In our experience, borrowers underestimate how much these affect serviceability, particularly if they've opened new accounts since their original loan was approved.

Living expenses are assessed using either your declared spending or a benchmark figure called the Household Expenditure Measure (HEM). Lenders use whichever is higher. If you've added dependents, moved to a higher cost-of-living area, or increased your household size, your assessed expenses will be higher than they were when you first borrowed. If your borrowing capacity has tightened due to these changes, it can affect your ability to refinance even if your income hasn't changed.

Why Property Valuation Matters More Than You Think

Lenders order a valuation when you refinance, and the figure they receive determines your loan-to-value ratio (LVR). If your property has increased in value, your LVR improves and you might avoid lenders mortgage insurance (LMI). If it's dropped, or hasn't grown as much as you expected, you could end up with a higher LVR than when you first borrowed.

As an example, a borrower refinances a property they purchased for $550,000 with a 10% deposit. The original loan was $495,000, and after three years of repayments, the balance is down to $470,000. They expect the property has risen in value to around $600,000 based on recent sales in the area. The lender's valuation comes back at $560,000. The LVR is now 84%, not the 78% they anticipated. The new lender applies LMI because the LVR is above 80%, adding several thousand dollars to the refinance cost. The borrower has to decide whether the rate saving justifies the upfront fee.

Valuations can vary depending on the valuer, the sales evidence available at the time, and the lender's risk appetite for that location or property type. You don't get to choose the valuer, and you can't easily challenge the outcome unless there's a clear factual error. If the valuation comes in lower than expected, your options are to proceed with LMI, contribute additional funds to reduce the LVR, or stay with your current lender.

What Shows Up on Your Credit File and How It Affects Your Application

Every lender checks your credit file before approving a refinance. Your file shows every credit application you've made in the past five years, any defaults or missed payments, and your repayment history on current accounts.

Multiple credit enquiries in a short period can raise concerns. If you've applied for several credit cards, a car loan, and a personal loan in the months leading up to your refinance application, lenders see that as a sign of financial stress. Even if those applications were declined or you didn't proceed, the enquiries remain on your file. A single missed payment on a phone bill or utility account can appear as a default if it's been referred to a collections agency. Defaults stay on your file for five years, and most lenders won't approve a refinance if you have any defaults listed, regardless of the amount.

If you've been making extra repayments or paying ahead on your current loan, that helps. Lenders can see your repayment conduct, and a consistent track record of on-time or early payments strengthens your application. If you've been using a redraw facility frequently or relying on an offset account to keep your loan balance lower than it would otherwise be, make sure that pattern is sustainable. Lenders assess serviceability based on your actual loan balance, not the redraw or offset balance.

Employment Type and How It Impacts Your Refinance Application

Full-time permanent employees have the simplest path to approval. Lenders treat their income as stable and usually only require two recent payslips and a letter of employment.

Casual and contract workers face additional scrutiny. Most lenders require at least six to twelve months of continuous employment in the same role, and they'll average your income over that period. If your hours fluctuate, the lender uses a conservative average. Overtime and bonuses are typically discounted or excluded unless you can demonstrate they've been consistent for at least two years.

Self-employed borrowers need to provide two years of tax returns and often two years of financial statements prepared by an accountant. Lenders assess your taxable income, not your turnover, which means deductions that reduce your tax bill also reduce your borrowing capacity. If you've recently started a business or changed your ABN structure, most lenders won't accept your income until you have two full years of lodged returns. Some specialist lenders offer low-doc or alternative income verification options, but these usually come with higher rates and lower maximum LVRs.

If you've changed employment type since your original loan was approved, factor in the additional documentation requirements and the possibility that your income will be assessed differently. A loan health check before you formally apply can clarify whether your current employment structure will meet lending criteria.

How Much Equity You Need to Refinance Without Extra Costs

Most lenders won't approve a refinance if your LVR is above 90%, and many cap it at 80% to avoid LMI. If your property value has remained flat or declined, or if you haven't paid down much of the principal, you might not have enough equity to refinance without incurring extra costs.

If you're looking to access equity as part of the refinance, either for renovations, investment purposes, or debt consolidation, the amount you can borrow depends on your LVR and serviceability. Lenders will let you borrow up to 80% of the property value without LMI in most cases, but that 80% includes your existing loan balance plus any additional funds you want to release. If your current loan balance is already sitting at 78% LVR, you have very little equity available to access.

When Your Fixed Rate Has Ended and You're Considering a Refinance

If your fixed rate period is ending, you'll revert to a variable rate that's often much higher than what new borrowers are being offered. Refinancing at this point can save a significant amount in interest, but you still need to meet current eligibility requirements.

Lenders don't automatically roll you onto their lowest available rate when your fixed term ends. You'll usually revert to a standard variable rate unless you proactively negotiate or refinance. If you've been on a fixed rate for several years, your income, expenses, property value, and credit file might have all changed. Before you assume you'll automatically qualify for a new loan, check that your financial position still meets lending criteria.

In our experience, borrowers coming off fixed rates are often surprised by how much serviceability rules have tightened, particularly if interest rates have risen since they first borrowed. The buffer rate applied today might be higher than what was used when you originally qualified, meaning you need to demonstrate even stronger serviceability to refinance the same loan amount.

What Happens If You Don't Meet Refinancing Eligibility Requirements

If your application gets declined, you have a few options. You can stay with your current lender and negotiate a lower rate, which doesn't require a full credit assessment or revaluation. Many lenders will reduce your rate to retain you, particularly if you've been making repayments on time and have some equity in the property.

You can also work on improving your financial position before reapplying. Pay down credit card balances, close unused accounts, avoid new credit applications, and ensure your income is stable and well-documented. If you're self-employed, wait until you have two full years of tax returns lodged. If you've recently changed jobs, wait until you've been in the role for at least six months.

Another option is to speak with a mortgage broker who has access to a wider panel of lenders. Different lenders have different serviceability calculators, and some are more flexible with certain employment types, property locations, or credit histories. A broker can identify which lenders are most likely to approve your application based on your specific circumstances, rather than applying to multiple lenders and accumulating credit enquiries that further damage your position.

If you're unsure whether you'll meet current lending criteria, it's worth having a conversation before you formally apply. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions