Refinance Home Loan with Bad Credit

It’s possible to refinance a home loan with a bad credit rating, so you can find out more about how to do it with Savvy.

Written by 
Savvy Editorial Team
Savvy's content writing team are professionals with a wide and diverse range of industry experience and topic knowledge. We write across a broad spectrum of finance-related topics to provide our readers with informative resources to help them learn more about a certain area or enable them to decide on which product is best for their needs with careful comparison. Meet the team behind the operation here. Visit our authors page to meet Savvy's expert writing team, committed to delivering informative and engaging content to help you make informed financial decisions.
Our authors
, updated on August 8th, 2023       

Fact checked

At Savvy, we are committed to providing accurate information. Our content undergoes a rigorous process of fact-checking before it is published. Learn more about our editorial policy.

Refinancing your home loan when you have a bad credit rating can be a way to start rebuilding your finances.  If you have other debts you are struggling to pay off you could use the opportunity to consolidate all your debts under one umbrella and reduce the interest you’re paying.  Find out more about the options available to you with Savvy and compare home loans to find how much the cheapest loan can save you in interest payments.

How do I refinance my home loan with bad credit?

You may not always be able to refinance your house with bad credit using one of the big banks, but there are many specialist online lenders who will welcome your business, providing you have at least 20% equity in your home (if not more). These online lenders tend to take a different approach to borrowers who may have a poor credit rating.  They’ll look at loan applications on a case-by-case basis, rather than a ‘one size fits all’ approach which is often taken by the big banks or more conservative lenders.  Savvy can help you make a more informed choice by comparing the loans offered by specialist lenders so you can find one that perfectly fits with your home loan requirements.  Use Savvy’s home loan comparison calculator to more accurately compare different loans at once and see which is best for you.

What other options do I have?

If you do have a bad credit rating, your options to find your way back into financial health include:

  • working on improving your credit rating and waiting to refinance until your score has increased. Several steps you can take to improve your credit score can produce an immediate result, such as lowering the limits on your credit cards, paying off all your other loans and credit cards in full and cancelling any other lines of credit you may have such as store ‘buy now pay later’ schemes.
  • consulting a mortgage broker for your refinance, who may be able to find you a lender with suitable loan criteria that fits your personal situation. A mortgage broker may be able to suggest the most appropriate lender to approach or give you advice about how to increase your chances of loan approval. They’re experienced at helping people find a loan tailored to their situation.

What can I do to maximise my chances of loan approval?

To maximise your chances of approval if you want to refinance your house with a bad credit rating, follow these steps:

  • continue to make your home loan repayments on time and in full
  • remain in the same job for at least three months (but preferably six months) prior to your loan application and make sure to keep all your payslips or wage notices so you can provide them to your lender
  • don't change your living address, phone number or email address in the months prior to your loan application, as these are all measures of life stability which will have an effect on your credit rating
  • don't use payday lenders or pawn things you own, as these transactions will show up in your credit report and could create a poor impression with your new lender. Also, delete any sports betting accounts you may have in your name
  • pay off as many smaller debts as possible and get your credit card balances down to zero (if you’re able to). If not, try to pay above the minimum payments required on your cards on time
  • pay all your utility bills, council rates and other bills by their due date
  • once you’ve paid down your credit cards, reduce the credit limit on all your credit cards, as your credit limits will count as debt and will reduce the amount you’re able to borrow
  • cancel all your unused lines of credit such as ‘buy now, pay later’ store credit schemes so you have a little owing to others as possible

If you take these measures, you’ll be well on your way towards repairing your credit rating and stand a far better chance of having your refinance mortgage with bad credit approved.

More questions about mortgage refinance with bad credit

Can I get my credit report changed if it has incorrect information?

Yes – you should get hold of your credit report prior to applying for a home loan and check that all the details are correct.  You’re entitled to one free credit report per year and it’s simple to apply for a copy of your credit report to the online credit agencies such as Equifax, Illion and Experian. If you do find mistakes, contact the credit agency who issued your report and provide proof that an entry is incorrect.  The mistake should be correctly promptly.

What is a debt consolidation loan?

A debt consolidation loan is a type of home loan which is taken out in order to consolidate other expensive debts under one umbrella with a loan that has a far lower interest rate than the lofty charges on credit cards and personal loans.  Since credit card interest rates can reach as high as 25%, and personal loans can have interest rates in the region of 6-18%, refinancing your home loan to pay off these expensive debts can make good sense.

Can I refinance my home loan if my repayments are in arrears?

You can, but it’s quite difficult to do so.  You should always talk to your current lender before you become unable to make your loan repayments.  If your lender is aware that you’re suffering mortgage stress, it may be possible to arrange a mortgage holiday, extend the length of your current home loan to reduce repayments or take other measures to assist you to reduce your financial difficulties.

What fees will I have to pay upfront to refinance my home loan?

There may be several lender’s fees you’ll have to pay if you are looking at refinancing your home loan, particularly if you choose to switch to another lender.  There may be mortgage discharge fees (ranging from $100 to $400 in most cases), plus loan establishment fees for your new loan (which typically range from $200 to $700).  If your current loan has a fixed rate, you may also be charged early exit (or break fees) as well.  However, you could compare lenders with Savvy and look for cashback deals being offered by lenders, or you may be able to find no-fee or low-fee loan options.

How long does it take to improve your credit score?

Some actions you take (such as lowering your credit card limits, cancelling lines of credit and deleting online betting accounts) will have an immediate effect on your credit score.  Other actions, such as paying your bills on time, may take weeks or months to improve your credit rating.

Can I get a better interest rate by refinancing my bad credit home loan?

Yes – a bad credit home loan with a lender specialising in this type of finance may just be your first stepping stone on the way to financial recovery.  Once you’ve been approved for a mortgage refinance with bad credit, you can stay with that lender for a year or two and, when your credit score is repaired, refinance again so you can access the best home loan rate, take advantage of a wider choice of loans and plenty of additional loan features to help you reduce your interest bill.

Helpful guides on home loans

How to renegotiate your home loan?

Avoid setting and forgetting One way that some Aussies shortchange themselves when it comes to their home loans is when they choose to set and forget their mortgage. Finding a...

six useful tools when house hunting

To buy or to rent? The thought of owning your property might tickle your imagination, but is it something that is within your financial reach? Most Australians finance their homes...

How much house can you afford?

How much you can afford is influenced by how much you earn No matter where you choose to go to take out a home loan, the amount you will be...

5 bad credit home loan myths

You can’t get a home loan if you have a bad credit history Many Aussies who have a bad credit history do not consider taking out a home loan, as...

We'd love to chat, how can we help?

By clicking "Submit", you agree to be contacted by a Savvy Agency Owner and to receive communications from Savvy which you can unsubscribe from at any time. Read our Privacy Policy.