Refinancing a Home Loan With Bad Credit, September 2026
Compare all refinance home loan rates
Two different borrowers land here: someone on a specialist loan whose file has healed, and someone whose credit slipped after they settled. The answer is different for each.
Can I refinance my home loan with bad credit?
Yes, if the numbers line up. Lenders refinancing an impaired file look at three gates: equity (usually at least 20% for the widest choice), current repayments (the last two years of repayment history are on your report), and the age and status of each listing. Pass those and a near-prime or specialist lender will typically assess the application.
Which refinancer are you?
- Healed file, still on a specialist loan. You settled at near-prime or specialist pricing, the listings have aged or dropped off, and repayments have been clean. This is the refinance the specialist tier is designed to lead to, and it is often worth a serious look. Compare the prime tier on refinance home loan rates.
- Credit slipped after settlement. You are on a prime loan but now carry a default, missed repayments or hardship information. Refinancing means moving to a lender that accepts the listing, which usually costs more than the loan you have. Staying put, fixing the file, then refinancing later is often the cheaper sequence, unless the current loan itself is the problem.
- Consolidating debts into the home loan. Rolling card, car or personal debt into a refinance can lower the monthly outgoing but stretches short debt over a 25 or 30 year term, and a lender must assess the whole picture under responsible lending rules. It is a serviceability question as much as a rate question.
The three gates lenders apply
- Equity. Refinance lenders set a maximum LVR at the new valuation. At or under 80% removes lenders mortgage insurance or the lender risk fee at most lenders and opens the near-prime tier; specialist lenders may go higher but price for it. Property values move, so the equity you had at purchase is not the equity the new lender will use. The home equity guide explains how lenders measure it.
- Arrears and repayment history. Two years of month-by-month repayment history sits on your credit report. Most refinance lenders want the existing home loan current, and many want a set run of on-time months before they will assess. Being in arrears on the loan you are trying to refinance is the single biggest obstacle.
- Listings. Defaults and court judgments stay on file for five years, serious credit infringements seven, bankruptcy for the later of five years from the start or two years from discharge. Paid defaults with a clear explanation are workable at near-prime; unpaid listings push the application into specialist lending or out of reach.
Source for retention periods: OAIC, what stays on a credit report, checked 2 September 2026.
Is refinancing with bad credit worth the cost?
Only if the total cost of the new loan over the years you will hold it is lower than staying. Line up:
- Exit costs on the current loan: discharge fee, mortgage discharge registration, and break costs if any part of the loan is fixed.
- Entry costs on the new loan: application and valuation fees, mortgage registration, and any lender risk fee or LMI, which can be capitalised and then attracts interest.
- The rate difference, in comparison-rate terms, on your actual balance and LVR, not the advertised headline.
- Time. A specialist product taken now, with a plan to refinance again in one to two years, carries two sets of switching costs.
For the healed-file borrower moving to prime, the rate saving is usually large enough to clear those costs quickly; run it through the refinance savings calculator. For the borrower whose file slipped after settlement, the same calculator will often show the move costs more than it saves, and the better question becomes how to fix the file. The guide on hidden costs of refinancing lists every fee to check.
Why cashback offers rarely apply
Refinance cashback offers are written for clean-file, full-documentation applications. The offers in the current register carry maximum LVRs of 80% and minimum loan sizes, and they attach to specific prime products that an impaired file will not be offered. Do not build a refinance case around a cashback until a lender has confirmed which product and tier you would be placed in. The refinance cashback offers page has the current register and conditions.
What to do before applying
- Get your credit report from each credit reporting body (free every three months). Confirm every listing is accurate; correcting an error is free and can change the tier you qualify for.
- Pay any unpaid default and get the paid status recorded before the application.
- Bring the existing loan fully current and keep it there. Lenders read the last two years month by month.
- Get a realistic idea of the property's value so you know the LVR the new lender will see.
- Apply once, to the right tier. Every enquiry stays on file for five years and clustered declines are read as a warning sign. If the file is complex, one considered application is worth more than several.
- If income evidence is the other open question, the low doc and self employed home loans page covers what lenders accept instead of payslips.
Refinancing with bad credit, questions answered
Can I refinance if I am behind on my current home loan?
Rarely with mainstream lenders. Most want the loan current and a run of on-time months first. If arrears are the issue, contacting the current lender about a hardship arrangement is usually the first step, noting that financial hardship information stays on your report for one year.
Can I refinance with a default on my credit file?
Often, through near-prime or specialist lenders, especially if the default is paid and more than a year or two old. A default stays on your report for five years; the choice of lenders widens as it ages and again when it drops off.
Will refinancing with bad credit lower my rate?
If you are currently on a specialist loan and your file has healed, usually yes, that is the purpose of the tier. If you are on a prime loan and your credit has since slipped, usually no; a new lender that accepts the listing will price above what you have.
Can I consolidate debts into a home loan with bad credit?
Some lenders allow it, subject to serviceability and the same equity and listing gates. Spreading short-term debt over a home loan term lowers the monthly figure but can raise the total interest paid, and the lender must assess the whole position under responsible lending obligations.
How much equity do I need to refinance with bad credit?
The widest choice is at 80% LVR or lower, meaning at least 20% equity at the new lender's valuation. Some specialist lenders go higher and charge a risk fee for it. Below that equity level the options narrow quickly.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is based on a loan of $150,000 over a term of 25 years.
The information provided on this site is general in nature and does not take into account your objectives, financial situation or needs. Before acting on any information, consider whether it is appropriate for you and read the relevant Credit Guide and lender disclosures.
Next: compare all refinance home loan rates to see the prime tier, read bad credit home loans for how lenders read your file, see the wider home loan rates table, or talk it through on a free call at book a call. General information only, not credit advice for your circumstances.
Page last reviewed 2 September 2026.