Refinancing when your mortgage is in arrears

Young couple considering refinancing at home with their baby boy. They are wearing pajamas and drinking first coffee of the day at the kitchen.

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

While refinancing may be a solution to help you with the situation, it’s important to understand the risks and also the benefits of refinancing your home loan with arrears.

What is refinancing and how can mortgage in arrears occur

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.

How can you avoid falling into arrears with your mortgage

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 is your repayment amount.

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 so you don’t end up with a bad credit rating, which will 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 important to consider and carefully understand what each entails before committing to a new loan.


  • Lender's Mortgage Insurance (LMI) - You may need to pay for LMI if you’re refinancing to borrow more than 80 per cent of the current value of your property. Pepper Money uses a Mortgage Risk Fee which gives us the flexibility to assess loan applications without having to seek approval from LMI providers. 
  • 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 have to 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. 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 can also consolidate your other debts (such as on your car loan or credit cards) by refinancing your home loan. Having a single repayment will 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, our specialist loans accept applicants with mortgage arrears.

If you’re facing bad credit and looking to refinance, you should consult a lending specialist or mortgage broker for advice as soon as possible. You should have a plan to demonstrate how you intend to budget better, reduce your spending and put savings aside. Also, try to be in the best possible financial situation when you apply. If possible, pay off any outstanding debt.

Apply for a Pepper Money Home Loan

Want to find out where you stand?

We've got the online tools and calculators to help get your home loan journey underway. Work out how much you may be able to borrow and even quickly find out what indicative interest rate you might be eligible for.

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. 

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

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