Refinancing when your mortgage is in arrears

couple thinking of refinancing

 Estimated read time: 2 Minutes

Falling behind on your mortgage repayments, or having your mortgage in arrears, can happen for a number of reasons.

While refinancing may be an option to help you with the situation, it’s important to contact your current lender first to discuss any hardship options you may have.

What is refinancing and how can mortgage in arrears occur?

Refinancing is the process of getting a new loan to replace your original loan. Refinancing could allow you to obtain a lower interest rate, access flexible rate options, consolidate multiple debts or leverage accumulated equity in your home.

Whether your mortgage is in arrears due to missed repayments or unexpected rise in interest rates, or you’re unable to work due to an injury, refinancing may be an option to consider. However, you should contact your current lender first to discuss hardship assistance options.


How can you avoid falling into arrears with your mortgage?

The most important thing you can do to avoid falling behind on repayments is to be completely aware of your responsibilities as a mortgage holder. You need to know when your repayments are due each month and how much your repayment amount is.

When unexpected events such as a job loss or illness happen and you are unable to afford the repayments, it is important to act quickly and contact your lender, as missed payments could negatively impact your credit score, which could affect your chance of getting a loan in the future.

Speak to your lender about whether you are eligible for any form of financial hardship assistance. 


The risks and benefits of refinancing a mortgage in arrears

Like every other loan you apply for, refinancing has its risks and benefits. It's a good idea to carefully consider and understand your options before committing to a new loan.


  • Lender's Mortgage Insurance (LMI) - Depending on your lender you may need to pay LMI or a Mortgage Risk Fee if you’re refinancing to borrow more than 80 per cent of the current value of your property.  
  • Fees - Refinancing will incur fees, although these vary from lender to lender. In general some of the fees include a discharge fee and new application fee. Depending on your loan, some lenders may also charge home loan break fees.
  • Longer loan duration - Obtaining a longer loan term on your refinanced mortgage may mean a more comfortable repayment amount, but you’ll also be in debt longer, and will likely pay more interest overall.


  • Lower interest rate - Many people choose to refinance their mortgage to get a lower interest rate. Lower interest rate means your repayment will be less. It might be an idea to get advice from your mortgage broker or financial adviser to see if refinancing will put you in a better position financially.
  • Consolidating debt - Depending on your circumstances, you could also consolidate your other debts (such as your car loan or credit cards) by refinancing your home loan. Having a single repayment could help you manage your finance better. 

Can you refinance with bad credit?

While it's possible to refinance your mortgage, even when in arrears, it's highly dependent on your individual circumstances and isn’t always an easy task. Pepper Money considers each application based on its own merits. Depending on the loan amount and individual’s unique circumstances, we have options that consider applicants with mortgage arrears.


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