Can You Refinance If You Have Mortgage Arrears?

Refinancing If You Have Mortgage Arrears

Yes, you may be able to refinance if you have mortgage arrears, but it is usually much harder than a standard refinance.

Mortgage arrears are one of the most serious conduct issues a lender can see. A refinance lender will usually review your current home loan repayment history, credit report, bank statements, income, property value, equity position and the reason the arrears occurred.

Some lenders may decline if you have any recent mortgage arrears. Some may consider the application if the arrears were minor and corrected quickly. Some specialist lenders may consider heavier arrears, especially where the refinance clears debts, improves cash flow and there is enough equity in the property.

The key question is not only whether you are behind now. The lender wants to know whether the new loan is affordable and whether the problem has been fixed.

This guide explains how Australian lenders may assess refinancing with mortgage arrears, missed home loan repayments, repayment history issues, hardship arrangements, arrears consolidation and specialist refinance options, based on current policy research.

Can you refinance with mortgage arrears?

Yes, refinancing with mortgage arrears may be possible, but lender options are limited.

A lender may consider the application if:

• the arrears are minor
• the arrears have been brought up to date
• there is a clear explanation
• income has stabilised
• the refinance improves the position
• there is enough equity
• current bank statements are acceptable
• other debts are manageable
• there are no recent defaults or court actions
• the lender’s policy allows arrears history
• the new loan is affordable

A mainstream lender may require a clean mortgage history. A specialist lender may be more flexible, but usually with tighter LVR limits and higher pricing.

What are mortgage arrears?

Mortgage arrears occur when a home loan repayment is missed, late or not paid in full.

This may happen when:

• a monthly repayment is missed
• a direct debit dishonours
• the loan is behind by part of a repayment
• the loan is behind by one full repayment
• multiple repayments are overdue
• a hardship arrangement has been entered
• arrears have been capitalised
• the lender has issued notices
• the loan is in default
• legal recovery action has started

A lender will usually look at both the amount overdue and the number of missed repayments.

Is a late repayment the same as mortgage arrears?

Not always.

A repayment that is a few days late may be considered a late payment, but not necessarily serious arrears.

Mortgage arrears usually become more serious when a full repayment is missed or the account remains behind.

For example:

• paid three days late may be minor, depending on lender policy
• paid within seven days may be acceptable to some lenders
• one full missed repayment may be more serious
• two or three missed repayments may push the application into specialist lending
• ongoing arrears at application time may be very difficult

The lender will usually review the actual home loan statement to see what happened.

Related research: Can You Get a Home Loan with Late Repayments but No Default?

Why mortgage arrears matter to refinance lenders

A refinance lender is taking over your existing home loan.

If your current mortgage is already in arrears, the new lender may worry that you will also miss repayments with them.

The lender may ask:

• why did the arrears happen?
• are the arrears now cleared?
• how many repayments were missed?
• how recently did the arrears occur?
• was there a hardship arrangement?
• did the arrears result in default or legal action?
• has income recovered?
• have expenses reduced?
• will the refinance improve cash flow?
• is the new loan genuinely affordable?

A refinance cannot simply move the problem to another lender unless the new structure solves the issue.

Can you refinance if you are currently behind on your mortgage?

Possibly, but it is much harder.

Current arrears are more serious than past arrears that have been cleared.

If you are currently behind, the lender may need to know:

• current arrears amount
• number of missed repayments
• reason for arrears
• whether the current lender has issued default notices
• whether legal action has started
• whether the arrears will be paid out at settlement
• whether other debts are also overdue
• whether income is now stable
• whether the refinance is responsible

Specialist lending may be required if the arrears are current.

Can you refinance after arrears have been cleared?

Yes, your options usually improve after arrears are cleared.

A lender may be more comfortable if:

• the home loan is now up to date
• there is proof the arrears were cleared
• no further missed repayments occurred
• bank statements are clean
• income is stable
• the arrears were caused by a one-off event
• enough time has passed
• LVR is acceptable
• credit report is otherwise clean

Some lenders may still require a clean repayment history for several months before considering the refinance.

How many months of mortgage statements do lenders check?

Many refinance lenders request recent home loan statements.

Depending on the lender and situation, they may ask for:

• one month of mortgage statements
• three months of mortgage statements
• six months of mortgage statements
• 12 months of repayment history
• a payout statement
• arrears clearance evidence
• hardship exit letter
• credit report repayment history

Specialist lenders may request more detail where arrears, defaults, hardship or debt consolidation are involved.

Why six months of mortgage conduct matters

Some lenders place particular weight on the most recent six months of mortgage conduct.

They may want to see whether repayments were made on time, whether arrears occurred, and whether the current lender has been paid as agreed.

A refinance application may be stronger if the last six months show:

• no missed repayments
• no arrears balance
• no dishonoured direct debits
• no hardship arrangement
• no unexplained lump sum catch-up payments
• no default notices
• no redraw used to cover repayments
• stable income credits

If the last six months show arrears, lender options may narrow.

How many missed repayments are acceptable?

There is no single rule across all lenders.

Based on current policy research, some specialist lender policy distinguishes between different levels of mortgage arrears, such as less than one full missed repayment, less than three missed repayments, or more serious arrears that require specialist assessment.

This means the number of missed repayments can change which lenders and products may be available.

Broadly:

• a few days late may be explainable
• less than one full missed repayment may be acceptable to some lenders
• one missed repayment may reduce options
• two or more missed repayments are more serious
• unlimited or severe arrears usually require specialist lending

The exact outcome depends on timing, LVR, explanation and overall conduct.

What if the arrears were paid within a few days?

This is usually easier to explain than ongoing arrears.

A lender may be more comfortable if:

• the repayment was only a few days late
• it was paid in full shortly after the due date
• it happened once
• the home loan is now current
• there was no formal default
• no hardship arrangement was entered
• bank statements are otherwise clean

Some policies may allow minor arrears if they were paid within a short period, such as seven days, but this is lender-specific.

What if you missed one full mortgage repayment?

One missed mortgage repayment is more serious than a short delay.

A lender may ask:

• why was the full repayment missed?
• was it caught up?
• how long was the loan in arrears?
• has it happened before?
• did the credit report show a missed repayment?
• was hardship involved?
• were there dishonours or overdrawn accounts?
• has conduct been clean since?

Some lenders may still consider the application if the missed repayment was isolated and resolved.

What if you missed two or three mortgage repayments?

Two or three missed repayments usually push the application into a higher-risk category.

A mainstream lender may decline or require a longer clean conduct period.

A specialist lender may consider the refinance depending on:

• current arrears position
• property equity
• reason for arrears
• income stability
• exit strategy
• other debts
• credit report
• whether legal action has started
• whether the refinance improves affordability

The more arrears there are, the more important equity and recovery evidence become.

What if arrears are more than three months?

Serious arrears can still be considered by some specialist lenders, but options are limited.

The lender may want to see:

• strong equity
• clear cause of arrears
• confirmed payout figure
• evidence that income has recovered
• no unacceptable legal action
• no unresolved bankruptcy or Part IX issues
• responsible refinance purpose
• realistic repayment capacity
• clean conduct after the issue, if available

This type of application should be assessed carefully before lodging.

What if arrears were caused by a direct debit error?

A direct debit error may be explainable.

For example:

• the repayment came from the wrong account
• salary arrived late
• the lender changed the repayment date
• bank details were incorrect
• a manual payment was made late
• funds were available in another account

A lender may accept the explanation if:

• the issue was isolated
• the arrears were corrected quickly
• statements support the explanation
• there were no repeated missed repayments
• other accounts were well managed

Repeated direct debit errors are harder to explain.

What if arrears were caused by temporary hardship?

Temporary hardship can be considered, but the lender will want evidence that the issue has ended.

Hardship may have been caused by:

• job loss
• reduced hours
• illness
• injury
• separation
• business disruption
• maternity or parental leave
• unexpected expenses
• delayed insurance payment
• natural disaster
• temporary rental vacancy

The lender may ask what has changed and why the arrears will not happen again.

What if arrears were caused by job loss?

Job loss is a common reason for arrears.

A lender may consider refinancing if:

• you are now employed again
• income is stable
• probation or new employment risk is acceptable
• arrears have been cleared or will be cleared at settlement
• no further missed repayments have occurred
• debts are manageable
• bank statements have improved
• the new loan is affordable

If your new job only recently started, the application may need more care.

What if arrears were caused by illness or injury?

A lender may consider the application if the illness or injury was temporary and the financial position has recovered.

They may ask:

• have you returned to work?
• is income stable?
• are there ongoing medical costs?
• was income protection paid?
• were repayments caught up?
• is there any ongoing hardship?
• are bank statements now clean?
• is the new loan affordable?

If the illness is ongoing and income remains uncertain, options may be limited.

What if arrears were caused by separation or divorce?

Separation can cause mortgage arrears because household income changes quickly.

A lender may ask for:

• separation explanation
• family law documents
• property settlement details
• who will keep the home
• whether one party is being bought out
• child support income or expenses
• updated living expenses
• current income evidence
• arrears history
• current payout figure

A refinance to buy out an ex-partner may still be possible, but the lender must be comfortable with the new single-borrower position.

Related research: Can You Get a Home Loan After Divorce or Separation?

What if arrears were caused by business cash flow issues?

Self-employed borrowers may fall into arrears during business downturns.

A lender may review:

• business income recovery
• tax returns
• business financials
• BAS
• business bank statements
• ATO debt
• supplier debts
• director guarantees
• business loan repayments
• current trading position
• whether business debts are being consolidated

If business cash flow remains weak, refinancing may be difficult.

What if arrears were caused by rising interest rates?

Rising interest rates can contribute to arrears, but the lender will still assess whether the new loan is affordable.

A refinance may help if:

• the new rate is lower
• debts are consolidated responsibly
• loan term is extended appropriately
• income has increased
• expenses have reduced
• the borrower has enough equity
• repayments become sustainable

However, if the loan only becomes affordable by stretching further without fixing the underlying issue, the lender may be cautious.

Can you refinance to clear mortgage arrears?

Yes, some specialist refinances may allow arrears to be cleared at settlement.

This may happen where the new loan pays out:

• current home loan balance
• arrears balance
• fees and charges
• legal costs, if acceptable
• other debts being consolidated

The lender will still need to confirm:

• payout figure
• arrears amount
• current property value
• available equity
• loan purpose
• affordability after refinance
• that the refinance improves the borrower’s position

Not every lender will allow arrears to be capitalised into a new home loan.

Can you refinance to consolidate arrears and other debts?

Possibly.

Debt consolidation may be considered if it improves cash flow and is responsible.

A refinance may consolidate:

• mortgage arrears
• credit cards
• personal loans
• car loans
• payday loans
• tax debt
• strata arrears
• council rates
• utilities
• private debts
• legal costs

A lender may require the consolidated debts to be paid directly at settlement and may require accounts to be closed.

Related research: Can You Refinance Business Debt into a Home Loan?

What if you want to refinance to stop a mortgagee sale?

This is urgent and difficult.

If the current lender has started enforcement or mortgagee sale action, options may be very limited.

A specialist lender may consider the application only if:

• there is enough equity
• payout figures are available
• legal costs are known
• settlement can occur quickly
• income is sufficient
• the refinance is responsible
• there is no unacceptable legal barrier
• the borrower can afford the new loan

If legal recovery is already advanced, timing becomes critical.

What if a default notice has been issued?

A default notice makes the application more serious.

A lender may ask:

• when was the notice issued?
• how much is overdue?
• has the default been remedied?
• is legal action underway?
• has the current lender demanded repayment?
• is the arrears amount increasing?
• does the credit report show a default?
• can the refinance settle before further action?

Some lenders may decline once formal default or legal recovery has started.

What if legal fees have been added to the loan?

Legal fees can be included in the payout figure if the current lender has taken enforcement steps.

A refinance lender may ask:

• what legal fees have been charged?
• are they included in the payout figure?
• has legal action commenced?
• is the loan still able to be discharged?
• is the payout valid to the proposed settlement date?
• does the borrower still have enough equity?

Legal costs can reduce available equity and affect LVR.

Can you refinance if you are in hardship?

Possibly, but it is difficult.

If you are currently in a hardship arrangement, the new lender will want to understand whether the hardship has ended or whether the refinance is part of the recovery plan.

They may ask:

• when hardship started
• why hardship was needed
• whether reduced payments were made
• whether the hardship arrangement was completed
• whether the account is now current
• whether hardship appears on the credit report
• whether income has recovered
• whether the refinance improves affordability

Many mainstream lenders are cautious with recent or current hardship.

What if hardship has ended?

Your options may improve after hardship has ended.

A lender may be more comfortable if:

• the hardship arrangement was completed
• repayments are now normal
• the account is up to date
• income is stable
• conduct has been clean since
• there are no further arrears
• there is a clear explanation
• enough time has passed

The lender may still ask for hardship exit evidence or mortgage statements showing normal repayment conduct.

Can mortgage arrears appear on your credit report?

Yes, mortgage arrears may appear as repayment history information.

Your credit report may show whether your mortgage repayments were made on time or whether they were behind.

A lender may review:

• one-month late history
• two-month late history
• three-month late history
• hardship indicators
• defaults
• credit enquiries
• other repayment conduct
• current credit limits

Even if the mortgage statement looks current now, repayment history can still show past arrears.

What if the arrears do not show on your credit report?

They may still show on mortgage statements.

A refinance lender will often request statements from the loan being refinanced.

The statements may show:

• missed repayments
• arrears balance
• late fees
• dishonours
• payment reversals
• hardship arrangements
• default interest
• arrears notices

A clean credit report does not always remove the need to explain arrears shown in statements.

What if the arrears are only on an investment loan?

Investment mortgage arrears still matter.

A lender may treat missed investment loan repayments seriously because they are still mortgage repayments.

They may ask:

• was the investment property vacant?
• did rent stop?
• were repairs or strata costs unexpected?
• is rental income now restored?
• is the property being sold or retained?
• are arrears cleared?
• are other mortgages up to date?
• does the refinance include the investment debt?

If the arrears were due to a temporary rental vacancy, evidence of current rental income may help.

What if your owner-occupied loan is clean but your investment loan has arrears?

The lender will usually review both.

A missed repayment on any mortgage can affect the overall risk profile.

The lender may ask:

• why was one loan prioritised over another?
• is the investment property cash flow negative?
• will the investment property be retained?
• is rental income sufficient?
• are all loans now current?
• are there other debts?

Even if your home loan is clean, investment loan arrears can reduce lender options.

What if your mortgage is clean but other debts are in arrears?

This is less serious than mortgage arrears, but it still matters.

A lender may review arrears on:

• personal loans
• car loans
• credit cards
• buy now pay later
• payday loans
• tax payment plans
• council rates
• strata levies
• utilities

If the mortgage has always been paid on time, this can help. But arrears on other debts may still show cash flow stress.

Can you refinance with arrears and defaults?

Possibly, but options are usually specialist.

A lender may assess:

• mortgage arrears
• default amount
• whether defaults are paid
• when defaults were listed
• whether defaults relate to the same event
• court actions
• debt agreements
• bankruptcy history
• current income
• equity position
• bank statements

Multiple credit issues can significantly reduce lender options.

Can you refinance with mortgage arrears and payday loans?

This is difficult.

Mortgage arrears plus payday loans can suggest serious cash flow stress.

A lender may ask:

• why were payday loans used?
• were they used to cover mortgage repayments?
• are payday loans still active?
• have they been repaid?
• do bank statements show improvement?
• is the refinance consolidating them?
• will the accounts be closed?

Specialist lending may be needed, and the lender will need confidence the cycle will not continue.

Can you refinance with mortgage arrears and gambling transactions?

This can be difficult, especially if gambling contributed to the arrears.

A lender may review:

• gambling frequency
• gambling amount
• timing of gambling and missed repayments
• payday loan use
• overdrawn accounts
• direct debit dishonours
• savings conduct
• whether gambling has stopped
• whether the refinance is responsible

If gambling appears to be ongoing and affecting repayment conduct, approval may be much harder.

Related research: Do Gambling Transactions Affect a Home Loan Application?

Can you refinance with mortgage arrears and ATO debt?

Possibly.

A lender may consider ATO debt if it is being paid out before or at settlement, or if a payment plan is in place and acceptable.

The lender may review:

• ATO debt amount
• payment plan terms
• repayment history
• whether ATO debt caused mortgage arrears
• whether ATO debt will be cleared
• whether the borrower is self-employed
• whether tax lodgements are up to date

ATO debt plus mortgage arrears usually requires careful lender selection.

Can you refinance with strata or council arrears?

Possibly.

Strata arrears and council rate arrears can affect the application because they may indicate broader cash flow stress.

A lender may ask:

• how much is overdue?
• why was it unpaid?
• will it be cleared at settlement?
• are legal fees involved?
• has recovery action started?
• are mortgage repayments also in arrears?
• are property expenses affordable?

If the refinance clears these debts and improves cash flow, some lenders may consider it.

Can you refinance to buy out an ex-partner if there are arrears?

Possibly, but the application can be complex.

The lender may need to assess:

• current mortgage arrears
• separation agreement
• property settlement
• transfer of title
• payout to ex-partner
• current property value
• new loan amount
• single borrower income
• child support income or commitments
• other debts
• whether arrears were caused by separation

This type of refinance needs strong documentation and a realistic borrowing assessment.

Related research: Can You Refinance to Buy Out an Ex-Partner?

Can you refinance with arrears if you have equity?

Equity is important.

The more equity you have, the more options you may have.

A lender may be more comfortable if:

• LVR is low
• arrears can be cleared at settlement
• debt consolidation improves cash flow
• there is a buffer after refinance
• property value supports the loan
• no mortgage insurance is needed
• there is an exit strategy

However, equity alone is not enough. The new loan must still be affordable.

How much equity do you need to refinance with arrears?

There is no single amount.

It depends on:

• arrears severity
• lender type
• loan purpose
• property value
• income strength
• credit history
• debts being consolidated
• whether legal action has started
• whether mortgage insurance applies
• whether specialist lending is required

In many arrears cases, lower LVR is important. High-LVR refinance with mortgage arrears is usually very difficult.

Does LVR matter when refinancing with mortgage arrears?

Yes, LVR matters significantly.

LVR means loan-to-value ratio. It compares the loan amount to the property value.

An arrears refinance may be stronger if:

• LVR is 80% or lower
• no lenders mortgage insurance is required
• there is enough equity to clear arrears
• debts can be consolidated responsibly
• the borrower has a buffer after settlement
• property security is standard
• income supports the new repayment

Higher LVR arrears refinances are harder because the lender has less security and more repayment risk.

Does lenders mortgage insurance affect arrears refinances?

Yes.

If lenders mortgage insurance applies, refinancing with arrears becomes much harder.

Mortgage insurers are usually cautious about:

• recent mortgage arrears
• current arrears
• defaults
• hardship arrangements
• debt consolidation
• payday loans
• poor bank statement conduct
• weak savings
• high LVR

Even if a lender may consider the file, mortgage insurance may still block the application.

Can specialist lenders refinance mortgage arrears?

Yes, some specialist lenders may consider mortgage arrears.

Specialist lenders may consider applications involving:

• current arrears
• recent mortgage arrears
• paid defaults
• debt consolidation
• discharged bankruptcy
• Part IX debt agreements
• tax debt
• self-employed income
• non-standard income
• prior hardship

However, specialist lending may involve:

• higher interest rates
• lower maximum LVR
• risk fees
• more documentation
• stricter exit strategy
• direct payout of debts
• closer review of bank statements

Specialist lending should be used carefully and with a plan.

Can you refinance from a specialist lender later?

Possibly.

A common pathway is to use a specialist lender to stabilise the position, then refinance later when the credit profile improves.

This may be possible after:

• 12 months of clean mortgage conduct
• 24 months of clean conduct
• arrears are fully resolved
• credit score improves
• LVR reduces
• income remains stable
• debts are reduced
• bank statements stay clean

This is known as an exit strategy.

The aim is to move back to a sharper mainstream lender when eligible.

What interest rate should you expect with arrears?

A borrower with recent mortgage arrears may not receive the same rate as a borrower with clean conduct.

Specialist arrears refinance rates are often higher than standard major bank rates.

The rate may depend on:

• arrears severity
• LVR
• credit score
• income type
• property type
• loan amount
• whether defaults exist
• whether arrears are current
• whether debt consolidation is included
• whether the borrower has a clear exit plan

The cheapest lender is not always available immediately after arrears.

Can you refinance to a major bank after mortgage arrears?

Sometimes, but usually only after conduct has improved.

A major bank may be more comfortable if:

• arrears were minor
• arrears were not recent
• mortgage conduct has been clean since
• credit report is clean
• LVR is low
• income is stable
• bank statements are clean
• there are no other conduct issues

Major banks are less likely to accept current or serious recent arrears.

Can a non-bank lender help with mortgage arrears?

Yes, some non-bank and specialist lenders may be more flexible than major banks.

They may consider:

• recent arrears
• debt consolidation
• credit impairment
• self-employed borrowers
• lower credit scores
• non-standard income
• specialist credit tiers

Non-bank lending is still responsible lending. The lender must believe the new loan is affordable and suitable.

Can you refinance if arrears were caused by switching loans?

Sometimes arrears happen during a refinance or loan switch because of timing issues.

For example:

• a direct debit was cancelled too early
• settlement was delayed
• repayment date changed
• payout figure changed
• the borrower misunderstood the payment requirement

This may be explainable if evidence shows it was a one-off administrative issue and not cash flow stress.

A lender may ask for statements and settlement correspondence.

Can you refinance if arrears were caused by a fixed rate expiry?

A fixed rate expiry can cause repayments to jump.

If the increase caused arrears, the lender may ask whether the new refinance will make repayments affordable.

They may review:

• old repayment amount
• new repayment amount
• current arrears
• proposed refinance repayment
• income stability
• other debts
• expense reduction
• whether the borrower can handle future rate changes

If the refinance only slightly reduces repayments, the lender may still be cautious.

Can you refinance if arrears were caused by rental vacancy?

If the arrears relate to an investment property, a rental vacancy may be explainable.

A lender may ask for:

• lease agreement
• rental appraisal
• current rental income evidence
• property management statement
• vacancy period explanation
• bank statements showing rent credits
• proof arrears are cleared or being cleared

The lender may be more comfortable if the property is now leased and repayments are sustainable.

Can you refinance if arrears were caused by tenant damage or repairs?

Possibly.

A major repair or tenant damage event may cause temporary cash flow stress.

The lender may ask:

• what happened?
• was insurance paid?
• is the property now rentable?
• were repairs completed?
• is rental income restored?
• are arrears now controlled?
• will the refinance consolidate repair-related debt?

Evidence is important.

Can you refinance if arrears were caused by unpaid rent from tenants?

Possibly.

The lender may ask:

• was rent unpaid?
• has the tenant issue been resolved?
• is there a new lease?
• are landlord insurance payments expected?
• are arrears cleared?
• is property cash flow stable now?
• will the borrower retain the property?

If rental income remains uncertain, the lender may be cautious.

Can you refinance if arrears were caused by maternity or parental leave?

Yes, it may be possible if income has returned or is expected to return.

A lender may review:

• return-to-work date
• employer letter
• payslips after return
• parental leave income
• savings used during leave
• childcare costs
• current household expenses
• arrears history
• whether payments are now current

If income has not yet returned, options may be more limited.

Can you refinance if arrears were caused by unexpected expenses?

A one-off unexpected expense may be explainable.

Examples include:

• medical bill
• car repair
• legal bill
• emergency travel
• funeral costs
• household repairs
• insurance gap
• family emergency

A lender may ask whether the expense was truly one-off and whether the borrower now has enough buffer to manage future costs.

Can you refinance if arrears were caused by overspending?

This is harder.

If arrears were caused by spending more than income, the lender may want to see strong evidence of changed behaviour.

They may review:

• bank statements
• discretionary spending
• gambling
• BNPL use
• credit card balances
• payday loans
• savings history
• whether spending has reduced
• whether debts are being consolidated

A refinance can only help if the underlying behaviour has changed.

What documents do you need to refinance with arrears?

The documents depend on the lender, but may include:

• current mortgage statements
• six months of mortgage statements
• payout figure
• arrears statement
• default notice, if issued
• hardship agreement or exit letter
• credit report
• bank statements
• income evidence
• employment contract
• tax returns, if self-employed
• rental income evidence
• rates or strata notices
• debt statements
• explanation letter
• property valuation
• evidence arrears will be cleared

The more serious the arrears, the more evidence the lender may request.

What should an arrears explanation letter include?

An explanation letter should be clear and factual.

It may include:

• when the arrears started
• what caused the arrears
• how many repayments were missed
• current arrears amount
• whether the arrears are now cleared
• what has changed since
• current income position
• current expenses
• whether hardship was involved
• whether other debts are being consolidated
• why the refinance improves the position
• why arrears are unlikely to happen again

The explanation should match the mortgage statements and bank statements.

What if your explanation does not match the statements?

This can create problems.

For example, if you say arrears were caused by job loss but bank statements show heavy gambling, payday loans or high discretionary spending, the lender may not accept the explanation.

A lender will compare:

• explanation letter
• bank statements
• credit report
• mortgage statements
• income evidence
• debt statements
• hardship documents

The best explanation is honest, specific and supported by documents.

Can arrears be ignored if you have a good credit score?

No.

A good credit score helps, but mortgage statements can still show arrears.

A lender may still assess:

• repayment history
• arrears balance
• bank statement conduct
• credit report data
• property equity
• income stability
• debts
• refinance purpose

A good score does not override current mortgage arrears.

Can arrears be ignored if the property value has increased?

No, but increased equity can help.

A higher property value may reduce LVR and create room to clear arrears or consolidate debts.

However, the lender still needs to be satisfied that the new loan is affordable.

Equity can help with security. It does not replace repayment capacity.

Can arrears be ignored if the refinance repayment is lower?

Not ignored, but a lower repayment can help the case.

A refinance may improve affordability if it:

• reduces interest rate
• consolidates high-interest debts
• extends loan term responsibly
• clears arrears
• removes short-term debt pressure
• creates a stable repayment structure

However, the lender will still consider whether the borrower can maintain the new repayment over time.

Can arrears be ignored if the loan is low LVR?

Not ignored, but low LVR can improve options.

A low LVR can reduce lender risk and may open specialist options.

However, the lender still needs to verify:

• income
• conduct
• arrears reason
• repayment capacity
• property security
• loan purpose
• exit strategy

Even low-LVR loans can be declined if the borrower cannot afford repayments.

Can you refinance arrears without income evidence?

This is difficult.

Most lenders require income evidence to confirm the new loan is affordable.

Some specialist or alternative-doc lenders may consider non-standard income evidence for self-employed borrowers, but they still need proof of repayment capacity.

Possible evidence may include:

• payslips
• tax returns
• BAS
• business bank statements
• accountant letter
• rental income evidence
• pension or government income evidence
• investment income evidence

No-income arrears refinances are usually not realistic for standard residential lending.

What if you are self-employed and in arrears?

Self-employed borrowers may still refinance with arrears, but the lender will review business stability carefully.

You may need:

• tax returns
• financial statements
• BAS
• business bank statements
• accountant letter
• ATO debt details
• explanation of business cash flow
• evidence income has recovered
• mortgage statements

If the arrears were caused by business cash flow, the lender may want evidence that the business is now sustainable.

What if you are PAYG and in arrears?

PAYG borrowers may have simpler income evidence.

A lender may ask for:

• recent payslips
• bank salary credits
• employment contract
• employer letter, if needed
• explanation of arrears
• current mortgage statements
• bank statements
• debt statements

If employment is stable and arrears were caused by a resolved event, some lenders may consider the refinance.

What if you are on probation and have arrears?

This is difficult.

A new job on probation plus mortgage arrears creates two risk factors.

The lender may ask:

• how long you have been in the role
• whether you stayed in the same industry
• whether income is stable
• whether probation is standard
• whether arrears are current
• whether the new income fixes the problem
• whether LVR is low enough

Some specialist lenders may consider it, but options are narrower.

What if your income has increased since the arrears?

An income increase can help if it is stable and verifiable.

A lender may consider:

• new payslips
• employment contract
• promotion letter
• employer letter
• higher salary credits
• whether income is permanent
• whether overtime or bonus is needed
• whether arrears have stopped since income increased

The lender wants to see that the increased income has actually improved repayment capacity.

What if your expenses have reduced since the arrears?

Reduced expenses can help if they are real and ongoing.

Examples include:

• debts paid out
• credit cards closed
• childcare costs reduced
• rent no longer payable
• school fees reduced
• car loan repaid
• separation expenses resolved
• business expenses reduced

A lender may ask for evidence that the lower expenses are realistic and reflected in bank statements.

What if you want to extend the loan term to reduce repayments?

Extending the loan term may reduce monthly repayments, but the lender will assess whether this is appropriate.

They may consider:

• borrower age
• loan term
• retirement plans
• total interest cost
• whether lower repayments solve the issue
• whether the loan remains affordable
• whether there is an exit strategy

Extending the term can help cash flow, but it is not always enough to overcome arrears.

What if you want interest-only to reduce repayments?

Interest-only may reduce repayments temporarily, but lenders assess it carefully.

A lender may consider:

• reason for interest-only
• interest-only period
• exit strategy
• repayment shock when principal-and-interest starts
• LVR
• property purpose
• whether arrears are being avoided or solved
• whether the borrower can afford principal-and-interest later

Using interest-only purely to manage unaffordable debt may be difficult.

What if you want cash out while in arrears?

Cash out is difficult when there are arrears.

A lender may ask:

• what is the cash-out purpose?
• is it for debt consolidation?
• is it for living expenses?
• is it for business use?
• is it for renovations?
• is it to maintain lifestyle?
• are arrears current?
• will the loan still be affordable?

Many lenders will not allow cash out if the purpose is unclear or if the borrower appears to be under financial stress.

What if you want to sell instead of refinance?

Sometimes selling may be the safer option.

A refinance is not always the right answer.

Selling may be considered if:

• arrears are increasing
• income has not recovered
• debt is unaffordable
• legal action is advanced
• refinance options are too expensive
• equity is at risk
• the property no longer suits the household
• repayment capacity is unlikely to improve

A broker can assess lending options, but legal and financial advice may also be needed if enforcement is underway.

How to improve your chances of refinancing with arrears

Before applying, it helps to strengthen the application.

Useful steps include:

• bring the mortgage up to date if possible
• obtain current mortgage statements
• obtain a payout figure
• prepare a clear arrears explanation
• stabilise income
• reduce discretionary spending
• stop payday loan use
• avoid gambling transactions
• keep bank statements clean
• reduce credit card balances
• pay debts on time
• gather hardship documents
• check your credit report
• confirm property value
• compare specialist and mainstream lender policy

The goal is to show that the refinance solves a problem rather than extending it.

Should you wait before refinancing?

Sometimes waiting helps, but not always.

Waiting may improve options if:

• arrears are minor and can be cleared
• you can show three to six months of clean conduct
• income has recently improved
• hardship has just ended
• bank statements need to improve
• mortgage insurance would apply
• the arrears were caused by a short-term issue

However, waiting may be risky if:

• arrears are growing
• legal action has started
• default notice has been issued
• you cannot catch up repayments
• equity is reducing
• the current lender may proceed to enforcement

If arrears are current, get advice early rather than waiting until the situation becomes urgent.

Example scenarios

Scenario 1: One repayment paid seven days late

You paid one mortgage repayment a few days late because of a direct debit issue.

Some lenders may accept this if the repayment was caught up quickly and conduct is otherwise clean.

Scenario 2: One full missed repayment three months ago

You missed one full repayment after a temporary income gap, but the loan is now up to date.

Some lenders may consider the refinance, but options may be narrower.

Scenario 3: Three months in arrears

You are three months behind and want to refinance to clear arrears and consolidate debts.

This is likely a specialist lending scenario and will depend heavily on equity, income and the reason for arrears.

Scenario 4: Arrears caused by separation

You fell behind during a separation, but now want to refinance into your sole name and buy out your ex-partner.

The lender will assess both the arrears history and your new standalone affordability.

Scenario 5: Investment loan arrears from rental vacancy

Your investment property was vacant and you missed repayments, but it is now leased again.

The lender may consider current rental income, arrears history and whether the property remains affordable.

Scenario 6: Mortgagee sale threat

Your lender has started enforcement action and you need urgent refinance.

Options may be limited and specialist. Timing, equity, payout figures and legal status become critical.

So, can you refinance if you have mortgage arrears?

Yes, you may be able to refinance if you have mortgage arrears, but the application needs careful handling.

The strongest applications usually have:

• arrears cleared or able to be cleared at settlement
• clear reason for arrears
• stable income
• enough equity
• lower LVR
• no recent serious credit issues
• clean bank statements after the issue
• manageable debts
• responsible refinance purpose
• evidence the new loan improves affordability
• lender policy that can accept arrears history

Minor past arrears may be accepted by some lenders. Current or serious arrears usually require specialist assessment.

Need help refinancing with mortgage arrears?

A mortgage broker can help compare lenders that may consider mortgage arrears, missed repayments, hardship history, debt consolidation, specialist refinancing, paid defaults and other credit conduct issues.

We can review your mortgage statements, arrears history, credit report, bank statements, income, property value, debts, LVR and borrowing power before you apply.

If you are behind on your home loan or worried about missed repayments, speak with a mortgage broker who understands how different lenders assess arrears refinance applications.